Zorah, Hampton Hardware's manufacturing division of lawn-mowing and snow removal equipment, segments its business according to customer type: Professional and Residential. The following divisional information was available for the past year. 6 (Click the icon to view the divisional information.) Requirements Round all of your answers to four decimal places. 1. Calculate each division's ROI. 2. Calculate each division's profit margin. Interpret your results. i 3. Calculate each division's asset turnover. Interpret your results. Divisional information 4. Use the expanded ROI formula to confirm your results from Requirement 1. What can you conclude? X Requirement 1. Calculate each division's ROI. Operating Total Current First, enter the formula, and then calculate each division's ROI using the expanded formula. (Enter your answers as a percent, rounded to four decimal places.) Sales Income Assets Liabilities ROI Residential $ 1,314,400 $ 65,720 $ 167,400 212,000 $ 372,000 74,000 148,000 Residential % Professional 1,395,000 Professional % Assume that management has a 25% target rate of return for each division. Also, assume that Zorah's weighted average cost of capital is 12% and its effective tax rate is 35%. Interpret your results. Each division's ROI is ; however, the has an even higher ROI than the Print Done Requirement 2. Calculate each division's profit margin. Interpret your results. Professional Division First, enter the formula, and then calculate each division's profit margin. (Enter your answers as a percent, rounded to four de Residential Division Profit margin Residential % Professional % Interpret your results. The Professional Division is earning about on each dollar of sales, whereas the Residential Division is only earning about on each dollar of sales. The higher profit margin helps to account for its higher ROI. Requirement 3. Calculate each division's asset turnover. Interpret your results. First, enter the formula, and then calculate each division's asset turnover. (Round your answers to two decimal places.) Asset turnover Residential = times Professional times Interpret your results. The Professional Division is generating about V of sales for every dollar of assets. The Residential Division is generating about of sales for each dollar of assets invested. The is more efficient. Requirement 4. Use the expanded ROI formula to confirm your results from Requirement 1. What can you conclude? First, enter the expanded formula, and then calculate each division's Rol using the expanded formula. (Round your final answers to four decimal places. Enter the answer as a percent.) ROI Residential % % Professional % % Confirm your results from Requirement 1. Does your answer for the residential ROI agree with the basic ROI? Does your answer for the professional ROI agree with the basic ROI? What can you conclude? Even though the efficiency (as measured by the asset turnover) is higher than that of the the profitability (as measured by the profit margin) is so much higher that it causes its ROI to be much higher than the
