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Hello. I need to check my work. Thank you! In this part of the assessment, you will compute return on investment and residual income. You
Hello. I need to check my work. Thank you!
| In this part of the assessment, you will compute return on investment and residual income. You will then use these results | |||||||||||
| to determine if a company would be better off accepting or rejecting an investment opportunity. | |||||||||||
| Situation | |||||||||||
| Sales of 3 different divisions of Dogs R Us are given as follows: | |||||||||||
| Division 1 | Division 2 | Division 3 | |||||||||
| Sales | $ 1,834,726 | $1,438,751 | $2,156,520 | ||||||||
| Average Operating Assets | $ 546,324 | $456,235 | $472,640 | ||||||||
| Net operating income | $68,215 | $51,315 | $113,000 | ||||||||
| Minimum required rate of return | 11% | 9% | 18% | ||||||||
| Instructions | |||||||||||
| 1. Compute the margin, turnover, and return on investment of each division. Where necessary, carry computations to two decimal places. | |||||||||||
| Division 1 | Division 2 | Division 3 | |||||||||
| Margin = | |||||||||||
| Turnover = | |||||||||||
| Return on Investment = | |||||||||||
| 2. Compute the residual income of each division. Where necessary, carry computations to two decimal places. | |||||||||||
| Division 1 | Division 2 | Division 3 | |||||||||
| Actual operating income | $ 68,215.00 | $ 51,315.00 | $ 113,000.00 | ||||||||
| Required operating income | $ | $ | $ | ||||||||
| Residual income | $ | $ | $ | ||||||||
| 3. Assume three division manager at Dogs R Us are being evaluated based on return on investment. Assume they are each presented with an investment opportunity that would yield a 12% rate of return. | |||||||||||
| Would each division manager want to accept or reject the investment opportunity? | |||||||||||
| Division 1 | Division 2 | Division 3 | |||||||||
| 3b. Explain your answer: | |||||||||||
| 4. Assume the same three division managers are being evaluated based on residual income. Assume they are each presented with an investment opportunity that would yield a 12% rate of return. | |||||||||||
| Would each division manager want to accept or reject the investment opportunity? | |||||||||||
| Division 1 | Division 2 | Division 3 | |||||||||
| 4b. Explain your answer: | |||||||||||
| 5. Assume the same three division managers are each presented with an investment opportunity that would yield a 12% rate of return. | |||||||||||
| Would the company want each manager to accept or reject each investment opportunity? | |||||||||||
| Division 1 | Division 2 | Division 3 | |||||||||
| 6. Why might the decisions of a division manager not always align with what is best for the company as a whole? | |||||||||||
| Identify some steps that a division manager could take to resolve this type of dilemma. What do you think is the right thing to do? | |||||||||||
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Financial And Managerial Accounting
Authors: Carl S. Warren, Jefferson P. Jones, William Tayler
16th Edition
0357714040, 9780357714041
