Answered step by step
Verified Expert Solution
Question
1 Approved Answer
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
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 defined as average productive assets. Management bonuses are based in part on ROl. All investments are expected to earn a minimum return of 12 percent before income taxes. Fairmont's ROI has ranged from 21.3 to 24.5 percent since it was acquired. Fairmont had an investment opportunity in 201 that had an estimated ROl of 20 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 $21,000,000 at the end of 201, a 5 percent increase over the balance at the beginning of the year. Required: 1-a. Calculate the return on investment (ROI) for 201 for the Fairmont Division. 1-b. Calculate residual income for 201 for the Fairmont Division. Complete this question by entering your answers in the tabs below. Calculate the return on investment (ROI) for 201 for the Fairmont Division. Required: 1-a. Calculate the return on investment (ROl) for 201 for the Fairmont Division. 1-b. Calculate residual income for 201 for the Fairmont Division. Complete this question by entering your answers in the tabs below. Calculate residual income for 201 for the Fairmont Division. Note: Enter your answer in dollars and not in thousands
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started