Question
Vaughan Company has 3 divisions with the following information: Division A Division B Division C Sales $750,000 $700,000 $360,000 Net Operating Income $30,000 $35,000 $36,000
Vaughan Company has 3 divisions with the following information:
Division A | Division B | Division C | |
Sales | $750,000 | $700,000 | $360,000 |
Net Operating Income | $30,000 | $35,000 | $36,000 |
Average Operating Assets | $200,000 | $500,000 | $300,000 |
Minimum Required Rate of Return | 8% | 15% | 9% |
Assume that each division was presented with an investment opportunity that would yield a rate of return of 11%. If performance is being measured by residual income a.both division A and C would invest in the project, b.only division B will would invest in the project, c.only division A would invest in the project, d.only division C will would invest in the project, e.all of the divisions would invest in the project, f.none of the divisions would invest in the project because a.11% is equal to or higher than their minimum required rate of return, b.11% is greater than their current ROI, c.11% is less than their current ROI
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