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1. Compute each division's margin, turnover, and return on investment (ROI). 2. Compute each division's residual income (loss). 3. Assume each division is presented with an investment opportunity yielding a 15% rate of return. a. If performance is being measured by ROI, which division or divisions will accept the opportunity? b. If performance is being measured by residual income, which division or divisions will accept the opportunity?

1. Compute each division's margin, turnover, and return on investment (ROI). 2. Compute each division's residual income (loss). 3. Assume each division is presented with an investment opportunity yielding a 15% rate of return. a. If performance is being measured by ROI, which division or divisions will accept the opportunity? b. If performance is being measured by residual income, which division or divisions will accept the opportunity?

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Selected sales and operating data for three divisions of different structural engineering firms are given below: Division C $ 25,000,000 $5,000,000 $ 800,000 16% Sales Average operating assets Net operating income Minimum required rate of return Required: Division A $ 12,000,000 $3,000,000 $ 600,000 14% Division B $ 14,000,000 $7,000,000 $ 560,000 10% 1. Compute each division's margin, turnover, and return on investment (ROI). 2. Compute each division's residual income (loss). 3. Assume each division is presented with an investment opportunity yielding a 15% rate of return. a. If performance is being measured by ROI, which division or divisions will accept the opportunity? b. If performance is being measured by residual income, which division or divisions will accept the opportunity?
Transcribed Image Text:Selected sales and operating data for three divisions of different structural engineering firms are given below: Division C $ 25,000,000 $5,000,000 $ 800,000 16% Sales Average operating assets Net operating income Minimum required rate of return Required: Division A $ 12,000,000 $3,000,000 $ 600,000 14% Division B $ 14,000,000 $7,000,000 $ 560,000 10% 1. Compute each division's margin, turnover, and return on investment (ROI). 2. Compute each division's residual income (loss). 3. Assume each division is presented with an investment opportunity yielding a 15% rate of return. a. If performance is being measured by ROI, which division or divisions will accept the opportunity? b. If performance is being measured by residual income, which division or divisions will accept the opportunity?
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