Exercise 11-12 Evaluating New Investments Using Return on Investment (ROI) and Residual Income [LO11-1, LO11-2) Selected sales and operating data for three divisions of different structural engineering firms are given as follows: Sales Average operating assets Net operating income Minimum required rate of return Division A $ 15,050,000 $ 3,010,000 $ 617,050 9.000 Division B $ 35,050,000 $ 7,010,000 $ 525,750 9.500 Division C $ 25,050,000 $ 5,010,000 701,400 14.000 $ Required: 1. Compute the return on investment (ROI) for each division using the formula stated in terms of margin and turnover. 2. Compute the residual income (loss) for each division 3. Assume that each division is presented with an investment opportunity that would yield a 10% rate of return. a. If performance is being measured by ROI, which division or divisions will probably accept or reject the opportunity? b. If performance is being measured by residual income, which division or divisions will probably accept or reject the opportunity? Complete this question by entering your answers in the tabs below. Reg 1 Reg 2 Reg 3A Req 3B Compute the return on investment (ROI) for each division using the formula stated in terms of margin and turnover. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Margin Turnover ROI % Division A Division B % % % Division C % Reg 1 Req 2 > Exercise 11-12 Evaluating New Investments Using Return on Investment (ROI) and Residual Income [LO11-1, LO11-2) Selected sales and operating data for three divisions of different structural engineering firms are given as follows: Division Division Division Sales $15,050,000 $ 35,050,000 $25,050,000 Average operating assets $ 3,010,000 $ 7,010,000 $5,010,000 Net operating income $ 617,050 $ 525,750 $ 701,400 Minimum required rate of return 9.000 9.500 14.001 Required: 1. Compute the return on investment (ROI) for each division using the formula stated in terms of margin and turnover. 2. Compute the residual income (loss) for each division 3. Assume that each division is presented with an investment opportunity that would yield a 10% rate of return. a. If performance is being measured by ROI, which division or divisions will probably accept or reject the opportunity? b. If performance is being measured by residual income, which division or divisions will probably accept or reject the opportunity? Complete this question by entering your answers in the tabs below. Reg 1 Reg 2 Reg 3A Reg 38 Compute the residual income (loss) for each division. (Do not round intermediate calculations. Loss amounts should be indicated by a minus sign.) Division A Division B Division Residual income (los) Exercise 11-12 Evaluating New Investments Using Return on Investment (ROI) and Residual Income [LO11-1, LO11-2) Selected sales and operating data for three divisions of different structural engineering firms are given as follows: Division Division B Division Sales $15,050,000 $ 35,050,000 $ 25,050,000 Average operating assets $ 3,010,000 $ 7,010,000 $ 5,010,000 Net operating income $ 617,050 $ 525,750 $ 701,400 Minimum required rate of return 9.00 9.500 14.000 Required: 1. Compute the return on investment (ROI) for each division using the formula stated in terms of margin and turnover. 2. Compute the residual income (loss) for each division 3. Assume that each division is presented with an investment opportunity that would yield a 10% rate of return. a. If performance is being measured by ROI, which division or divisions will probably accept or reject the opportunity? b. If performance is being measured by residual income, which division or divisions will probably accept or reject the opportunity? Complete this question by entering your answers in the tabs below. Reg 1 Req 2 Reqyla Reg 38 Assume that each division is presented with an investment opportunity that would yield a 10% rate of return. If performance is being measured by ROI, which division or divisions will probably accept or reject the opportunity? Division A Division B Division C Exercise 11-12 Evaluating New Investments Using Return on Investment (ROI) and Residual Income [LO11-1, LO11-2] Selected sales and operating data for three divisions of different structural engineering firms are given as follows: Division Division 3 Division Sales $15,050,000 $ 35,050,000 $ 25,050,000 Average operating assets $ 3,010,000 $ 7,010,000 $ 5,010,000 Net operating income $ 617,050 $ 525,750 $ 701,400 Minimum required rate of return 9.008 9.508 14.005 Required: 1. Compute the return on investment (ROI) for each division using the formula stated in terms of margin and turnover. 2. Compute the residual income (loss) for each division 3. Assume that each division is presented with an investment opportunity that would yield a 10% rate of return. a. If performance is being measured by ROI, which division or divisions will probably accept or reject the opportunity? b. If performance is being measured by residual income, which division or divisions will probably accept or reject the opportunity? Complete this question by entering your answers in the tabs below. Reg 1 Reg 2 Req Rek 3B Assume that each division is presented with an investment opportunity that would yield a 10% rate of return. If performance is being measured by residual income, which division or divisions will probably accept or reject the opportunity? Division A Division B Division C
