Question
ROI and Residual Income: Basic Computations Watkins Associated Industries is a privately held conglomerate. Assume that the company uses return on investment and residual income
ROI and Residual Income: Basic Computations Watkins Associated Industries is a privately held conglomerate. 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 15%. Selected operating data for three of the divisions of the company follow.
Trucking Division | Seafood Division | Construction Division | |
---|---|---|---|
Sales | $6,450,000 | $1,845,000 | $5,200,000 |
Operating assets | 3,750,000 | 580,000 | 1,750,000 |
Net operating income | 525,000 | 116,000 | 385,000 |
(a) Compute the return on investment for each division. (Round answers to three decimal places.)
Trucking ROI = | Answer |
Seafood ROI = | Answer |
Construction ROI = | Answer |
(b) Compute the residual income for each division. Note: Use a negative sign if residual income is a loss.
Residual income | Trucking | Seafood | Construction |
---|---|---|---|
Net operating income | Answer | Answer | Answer |
Minimum level | Answer | Answer | Answer |
Residual income | Answer | Answer | Answer |
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