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 | $ | 1,560,000 | $ | 2,340,000 | |
Cost of goods sold and operating expenses | 1,170,000 | 1,755,000 | |||
Net operating income | $ | 390,000 | $ | 585,000 | |
Average invested assets | $ | 4,875,000 | $ | 2,437,500 | |
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1-a. Compute each divisions return on investment (ROI) and residual income for last year. (Enter your ROI answers as a percentage rounded to two decimal places, (i.e., 0.1234 should be entered as 12.34%.))
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1-b. Determine which manager seems to be performing better.
Fruit Division | |
Flower Division |
2. Suppose Orange is investing in new technology that will increase each divisions operating income by $125,000. The total investment required is $2,000,000, which will be split evenly between the two divisions. Calculate the ROI and return on investment for each division after the investment is made. (Enter your ROI answers as a percentage rounded to two decimal places, (i.e., 0.1234 should be entered as 12.34%.))
Fruit Division | Flower Division | |||
ROI | % | % | ||
Residual Income (Loss) |
3. Which manager will accept the investment.
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