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.

(a)Compute the return on investment for each division. (Round answers to three decimal places.)

Trucking ROI =

Seafood ROI

Construction ROI =

(b) Compute the residual income for each division.

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 $1,300,000 $870,000 $900,000 Operating assets 650,000 290,000 360,000 Net operating income 101,000 52,000 62,000 (a) Compute the return on investment for each division. (Round answers to three decimal places.) Trucking ROI = Seafood ROI Construction ROI = (b) Compute the residual income for each division. Residual Income Trucking Seafood Construction Net operating income 101,000 52,000 62,000 Minimum level 65,000 29,000 36,000 Residual income 36,000 23,000 26,000