Question
Selected sales and operating data for three divisions of three different companies are given below: Division A Division B Division C Sales $ 6,400,000 $
| Selected sales and operating data for three divisions of three different companies are given below: |
|
| Division A | Division B | Division C | ||||||
| Sales | $ | 6,400,000 |
| $ | 10,400,000 |
| $ | 9,500,000 |
|
| Average operating assets | $ | 1,600,000 |
| $ | 5,200,000 |
| $ | 2,375,000 |
|
| Net operating income | $ | 352,000 |
| $ | 988,000 |
| $ | 261,250 |
|
| Minimum required rate of return |
| 18 | % |
| 19 | % |
| 15 | % |
| Required: | |
| 1. | Compute the return on investment (ROI) for each division, using the formula stated in terms of margin and turnover. (Do not round intermediate calculations. Round your answers to 2 decimal places. Omit the "%" sign in your response.) |
|
| ROI |
| Division A | % |
| Division B | % |
| Division C | % |
| 2. | Compute the residual income for each division. (Negative amounts should be indicated by a minus sign. Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in your response.) |
|
| Division A | Division B | Division C |
| Residual income | $ | $ | $ |
| 3. | Assume that each division is presented with an investment opportunity that would yield a rate of return of 20%. |
| a. | If performance is being measured by ROI, which division or divisions will probably accept or reject the opportunity? |
|
|
|
| Division A | (Click to select)AcceptReject |
| Division B | (Click to select)RejectAccept |
| Division C | (Click to select)RejectAccept |
| b. | If performance is being measured by residual income, which division or divisions will probably accept or reject the opportunity? |
|
|
|
| Division A | (Click to select)AcceptReject |
| Division B | (Click to select)RejectAccept |
| Division C | (Click to select)RejectAccept |
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