Question
ROI and Residual Income: Basic Computations Watkins Associated Industries is a highly diversified company with three divisions: Trucking, Seafood, and Construction. Assume that the company
ROI and Residual Income: Basic Computations Watkins Associated Industries is a highly diversified company with three divisions: Trucking, Seafood, and Construction. Assume that the company uses return on investment and residual income as two of the evaluation tools for division managers. The company has a minimum desired rate of return on investment of 10 percent with a 30 percent tax rate. Selected operating data for three divisions of the company follow. Trucking Division Seafood Division Construction Division Sales $ 1,200,000 $ 750,000 $ 900,000 Operating assets 600,000 250,000 350,000 Net operating income 116,000 66,000 63,000 (a) Compute the return on investment for each division. (Round answers to three decimal places.) Trucking ROI = Answer 19.333 Seafood ROI = Answer 26.4 Construction ROI = Answer 18 (b) Compute the residual income for each division. Residual income Trucking Seafood Construction Net operating income $Answer 116,000 $Answer 66,000 $Answer 63,000 Minimum level Answer 60,000 Answer 25,000 Answer 35,000 Residual income $Answer 56,000 $Answer 41,000 $Answer 28,000
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