Question
Question: Altoona Technologies, Inc. (ATI) has three divisions. ATI has a desired rate of return of 12.5 pe... Altoona Technologies, Inc. (ATI) has three divisions.
Question: Altoona Technologies, Inc. (ATI) has three divisions. ATI has a desired rate of return of 12.5 pe...
Altoona Technologies, Inc. (ATI) has three divisions. ATI has a desired rate of return of 12.5 percent. The operating assets and income for each division are as follows:
| Divisions | Operating Assets | Operating Income | |||||
| Printer | $ | 540,000 | $ | 96,000 | |||
| Copier | 810,000 | 90,000 | |||||
| Fax | 360,000 | 54,000 | |||||
| Total | $ | 1,710,000 | $ | 240,000 | |||
ATI headquarters has $120,000 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 | 14.0 | % |
| Copier | 13.0 | % |
| Fax | 12.0 | % |
Required
a-1. Calculate the ROI for each division.
a-2. Which division manager is currently producing the highest ROI?
b. Based on ROI, which division manager would be most eager to accept the $120,000 of investment funds?
c. Based on ROI, which division manager would be least likely to accept the $120,000 of investment funds?
d. Which division offers the best investment opportunity for ATI?
g. Calculate the residual income:
(1) At the corporate (headquarters) level before the additional investment.
(2) At the division level before the additional investment.
(3) At the investment level.
(4) At the division level after the additional investment.
ReqG1
| residual income |
ReqG2 to G4:
| residual income (loss) | ||
| (2) | Printer Division | |
| Copier Division | ||
| Fax Division | ||
| (3) | Printer Division | |
| Copier Division | ||
| Fax Division | ||
| (4) | Printer Division | |
| Copier Division | ||
| Fax division |
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