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 A $12,120,000 3,030,000 496,920 Division B Sales Average operating assets Net operating income Minimum required rate of return s 28,120,000 $20,120,000 7,030,000 5,030,000 $ 449,920503,000 10.00 7.008 7.50t Required: . Compute the return on investment (RO) 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 8% 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. Req 1 Req 2 Req 3A Req 3B Compute the residual income (loss for each division. (Do not round intermediate calculations. Loss amounts should be indicated by a minus sign.) Division B Division C Division A Residual income (loss) K Req 1 Req 3A Ru) and Residual Income Selected sales and operating data for three divisions of different structural engineering firms are given as follows: DivisionA $12,120,000 3,030,000 496,920 Division c 28,120,000 $20,120,000 7,030,000 5,030,000 449,920 503,000 Division B Sales Average operating anmets Net operating income Minimum required rate of return 7.00% 7.50 10.00% ok 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 8% rate of return. a. If performance is being measured by ROl, 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? ces Complete this question by entering your answers in the tabs below Req 1 Req 2 Req 3A Req 3B Assume that each division is presented with an investment opportunity that would yield a 8% 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 Req 3B > Req 2 clOu Sales and operating data for three divisions of different structural engineering firms are given as follows: Division A $12,120,000 $ 3,030,000 $ 496,920 $ 449,9 Division B Sales Average operating assets Net operating income Minimum required rate of return Division C 28,120,000 $20,120,000 7,030,000 5,030,000 S 496,920 s 449,920 503,000 7.008 7,50% 10.00% Required: 1. Compute the return on investment (RO) for 2. Compute the residual income (loss) for each division. 3. As ach division using the formula stated in terms of margin and turnover sume that each division is presented with an investment opportunity that would yield a 8% rate of return. a. If performance is being measured by ROl, 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 opportuni Complete this question by entering your answers in the tabs below. Req 1 Req 2 Req 3A Req 38 Assume that each division is presented with an investment opportunity that would yield a 8% 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 EB Division C K Req 3A
