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P 10-X Return on Investment (ROI) and Residual Income Nut Company evaluates its divisions on the basis of Return on investment (ROI). Bonuses, to division
P 10-X Return on Investment (ROI) and Residual Income Nut Company evaluates its divisions on the basis of Return on investment (ROI). Bonuses, to division managers, are based on ROI All investments in operating assets are expected to earn a minimum rate of return of 16%. Pecan is one of Nut Company's divisions. Year 2's Income Statement for Pecan Division is displayed below. The division's operating assets were $16.8 million at the end of the year 2 which represents an increase of 5% over the end of year 1. Pecan Division Income Statement For the Year Ended December 31, Year 2 $41,000,000 20,863.000 $20,137,000 Sales Cost of goods sold Gross margin Less operating expenses: Selling Administrative Net operating income $7,385,000 9.472.000 16,857 000 $ 3.280.000 Compute the following performance measures, for year 2, for the Pecan Division: a) ROI. (Remember, ROI is based on average operating assets, computed from the beginning-of-the-year and end-of-year balances.) State ROI in terms of margin and turnover - the same as you will for this chapter's homework. b) Residual income
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