Question
Thornton Home Maintenance Company earned operating income of $6,376,500 on operating assets of $58,500,000 during Year 2. The Tree Cutting Division earned $1,159,200 on operating
Thornton Home Maintenance Company earned operating income of $6,376,500 on operating assets of $58,500,000 during Year 2. The Tree Cutting Division earned $1,159,200 on operating assets of $6,900,000. Thornton has offered the Tree Cutting Division $2,220,000 of additional operating assets. The manager of the Tree Cutting Division believes he could use the additional assets to generate operating income amounting to $448,440. Thornton has a desired return on investment (ROI) of 8.90 percent.
a. Calculate the return on investment for Thornton, the Tree Cutting Division, and the additional investment opportunity.
b. Calculate the residual income for Thornton, the Tree Cutting Division, and the additional investment opportunity.
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Financial & Managerial Accounting
Authors: Carl Warren
12th Edition
1285534646, 978-1133952428
