Selected sales and operating data for three divisions of different structural engineering firms are given as follows:

Division A

Division B

Division C

Sales

$

6,900,000

$

10,900,000

$

10,000,000

Average operating assets

$

1,725,000

$

5,450,000

$

2,500,000

Net operating income

$

414,000

$

1,090,000

$

325,000

Minimum required rate of return

19.00

%

20.00

%

16.00

%

Required:

1.

Compute the return on investment (ROI) for each division using the formula stated in terms of margin and turnover. (Round your Turnover answers to 2 decimal places. Round your Margin and ROI percentage answers to 2 decimal places (i.e., 0.1234 should be entered as 12.34).)

	Margin		Turnover	ROI
Division A		%			%
Division B		%			%
Division C		%			%

2.

Compute the residual income (loss) for each division. (Loss amounts should be indicated by a minus sign. Round your Required Rate of Return percentage answers to 2 decimal places (i.e., 0.1234 should be entered as 12.34).)

	Division A		Division B		Division C
Average operating assets
Required rate of return		%		%		%
Required operating income
Actual operating income
Required operating income (above)
Residual income (loss)

3.	Assume that each division is presented with an investment opportunity that would yield a 21% rate of return.

a.

If performance is being measured by ROI, which division or divisions will probably accept or reject the opportunity?

Division A
Division B
Division C

b.

If performance is being measured by residual income, which division or divisions will probably accept or reject the opportunity?

Division A
Division B
Division C