Question
South Division BD North Division BD East Division BD Sales 6,000,000 7,000,000 12,500,000 Total costs 1,500,000 3,500,000 2,500,000 Net operating income 300,000 280,000 400,000 Ranking
|
| South Division BD | North Division BD | East Division BD |
| Sales | 6,000,000 | 7,000,000 | 12,500,000 |
| Total costs | 1,500,000 | 3,500,000 | 2,500,000 |
| Net operating income | 300,000 | 280,000 | 400,000 |
| Ranking Minimum required rate of return |
16% |
18% |
20% |
- Assume that each division is presented with an investment opportunity that would yield a 15% rate of return.
a- If performance is being measured by ROI, which division or divisions will probably accept the opportunity? Reject? Why?
b- If performance is being measured by residual income, which division or divisions will probably accept the opportunity? Reject? Why?
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