Question
Orange Corp. has two divisions: Fruit and Flower. The following information for the past year is available for each division: Fruit Division Flower Division Sales
Orange Corp. has two divisions: Fruit and Flower. The following information for the past year is available for each division: Fruit Division Flower Division Sales revenue $ 1,800,000 $ 2,700,000 Cost of goods sold and operating expenses 1,440,000 2,025,000 Net operating income $ 360,000 $ 675,000 Average invested assets $ 3,600,000 $ 2,812,500 Orange has established a hurdle rate of 6 percent. Required: 1-a. Compute each divisions return on investment (ROI) and residual income for last year. (Round your "ROI" answers to 2 decimal places. Do not round your intermediate calculations.) 1-b. Determine which manager seems to be performing better. Flower Division Fruit Division 2. Suppose Orange is investing in new technology that will increase each divisions operating income by $133,000. The total investment required is $2,300,000, which will be split evenly between the two divisions. Calculate the ROI and return on investment for each division after the investment is made. (Round your "ROI" answers to 2 decimal places. Do not round your intermediate calculations.) 3. Which manager will accept the investment.
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