Return on Investment and Residual Income

Johnson Company has two sources of funds: long-term debt and equity capital. Johnson Company has profit centers in the following locations with the following net incomes and total assets:

Net Income Assets

Las Vegas $1,060,000 $4,000,000

Dallas 1,300,000 8,000,000

Tampa 2,140,000 12,000,000

a. Calculate ROI for each profit center and rank them from highest to lowest based on ROI.

Round ROI to the nearest whole percentage.

ROI Rank

Las Vegas

Dallas

Tampa

b. Calculate residual income for each profit center based on a desired ROI of 5% and rank them from highest to lowest based on residual income.

ROI Rank

Las Vegas

Dallas

Tampa