Question
Jordan Technologies, Inc. has three divisions. Jordan has a desired rate of return of 12.0 percent. The operating assets and income for each division are
Jordan Technologies, Inc. has three divisions. Jordan has a desired rate of return of 12.0 percent. The operating assets and income for each division are as follows:
Divisions | Operating Assets | Operating Income | |||||
Printer | $ | 630,000 | $ | 104,580 | |||
Copier | 900,000 | 99,900 | |||||
Fax | 450,000 | 63,000 | |||||
Total | $ | 1,980,000 | $ | 267,480 | |||
Jordan headquarters has $129,000 of additional cash to invest in one of its divisions. The division managers have identified investment opportunities that are expected to yield the following ROIs:
Expected ROIs for | ||
Divisions | Additional Investments | |
Printer | 13.5 | % |
Copier | 12.5 | % |
Fax | 11.5 | % |
|
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. Calculate the residual income:
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(1) At the corporate (headquarters) level before the additional investment.
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(2) At the division level before the additional investment.
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(3) At the investment level.
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(4) At the division level after the additional investment.
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