OCTOBER CORPORATION The condensed income statement for the importing division of OCTOBER CORPORATION is as follows (assuming no service-department charges): Invested assets at the start of the year were $1,900,000. At the end of the year, invested assets were $2,100,000. The manager of the importing division is considering ways to increase the rate of return on investment. REQUIRED: 1) Using the DuPont formula (the computation shown in the section entitled "Further Analysis of Return on Investment") for rate of return on investment, determine the profit margin, investment turnover and ROI of the importing division. The DuPont method involves breaking the return on investment up into 2 component parts as shown on the bottom of page 528: 2) If administrative expenses could be reduced by $60,000 without decreasing sales, what would be the impact on the profit margin, investment turnover and ROI of the importing division? NOVEMBER INDUSTRIES The income from operations and amount of invested assets in each division of NOVEMBER INDUSTRIES are as follows: REQUIRED: 1) Assume that management is evaluating divisional performance using ROI. Compute the ROI for each division. 2) Which division is the most profitable per dollar invested? 3) Assume that an investment opportunity has become available for the company that will require an investment of $1,000,000. Management has a required rate of return of 15%. This will not benefit the Sporting Goods division, so it will be shared equally by Healthcare division and Commercial division. Management estimates that additional income of $200,000 will be generated by this investment, thus, they estimate that it will have a ROI of 20%. a) From the standpoint of the company overall, is this a good investment or not? WHY? b) From the standpoint of the individual divisions, is this a good investment? Are the managers of the divisions in favor, yes or no and WHY? NOW ASSUME that NOVEMBER management is evaluating performance using Residual Income. 4) What is the residual income for each division before this potential project? 5) Which division is most profitable on this basis? What does this mean, in words? Is it really right to compare these divisions using the RI method? WHY or WHY NOT? 6) Assume that the same project becomes available from #3 above. Does the fact that we are now using Residual Income change your answer to 3(b) above? Yes or no? Explain