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Would like help understand how to calculate Calculate the return on investment (ROI) for 20x1 for the Fairmont Division. and Calculate residual income for 20x1

Would like help understand how to calculate

Calculate the return on investment (ROI) for 20x1 for the Fairmont Division. and

Calculate residual income for 20x1 for the Fairmont Division.

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Wyalusing Industries has manufactured prefabricated houses for over 20 years. The houses are constructed in sections to be assembled on customers' lots. Wyalusing expanded into the precut housing market when it acquired Fairmont Company, one of its suppliers. In this market, various types of lumber are precut into the appropriate lengths, banded into packages, and shipped to customers' lots for assembly. Wyalusing designated the Fairmont Division as an investment center. Wyalusing uses return on investment (ROI) as a performance measure with investment dened as average productive assets. Management bonuses are based in part on ROI. All investments are expected to earn a minimum return ofi2 percent before income taxes. Fairmont's ROI has ranged from 24.5 to 27.7 percent since it was acquired. Fairmont had an investment opportunity in 20x1 that had an estimated ROI of 23 percent. Fairmont's management decided against the investment because it believed the investment would decrease the division's overall ROI. The 20x1 income statement for Fairmont Division follows. The division's productive assets were $16,800,000 at the end of 20x1, a 5 percent increase over the balance at the beginning of the year. FAIRMONT DIVISION Income Statement For the Year Ended December 31, 20X1 (in thousands) Sales revenue $64,200 Cost of goods sold 41,100 Gross margin $23,100 Operating expenses: Administrative $ 5,230 Selling 13,770 19,000 Income from operations before income taxes 5 4,100

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