Division A $ 5,000,000 $ 1,000, 000 $ Division B $ 9,000, 000 $ 4, 500, 000 729, 000 Division C $ 8,100, 000 $ 1,620, 000 $ Sales Average operating assets Net operating income Minimum required rate of return 205, 000 16.00% $ 109, 350 16.20% 13.00% Required: 1. Compute the return on investment (ROI) for each division using the formula stated in terms of margin and turnover. 2. Compute the residual income (loss) for each division. 3. Assume that each division is presented with an investment opportunity that would yield a 16% rate of return. a. If performance is being measured by ROI, which division or divisions will probably accept or reject the opportunity? b. If performance is being measured by residual income, which division or divisions will probably accept or reject the opportunity? Complete this question by entering your answers in the tabs below.
Division A $ 5,000,000 $ 1,000, 000 $ Division B $ 9,000, 000 $ 4, 500, 000 729, 000 Division C $ 8,100, 000 $ 1,620, 000 $ Sales Average operating assets Net operating income Minimum required rate of return 205, 000 16.00% $ 109, 350 16.20% 13.00% Required: 1. Compute the return on investment (ROI) for each division using the formula stated in terms of margin and turnover. 2. Compute the residual income (loss) for each division. 3. Assume that each division is presented with an investment opportunity that would yield a 16% rate of return. a. If performance is being measured by ROI, which division or divisions will probably accept or reject the opportunity? b. If performance is being measured by residual income, which division or divisions will probably accept or reject the opportunity? Complete this question by entering your answers in the tabs below.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
![**Selected Sales and Operating Data for Three Divisions of Different Structural Engineering Firms**
The data for Division A, Division B, and Division C are as follows:
- **Division A**
- Sales: $5,000,000
- Average operating assets: $1,000,000
- Net operating income: $205,000
- Minimum required rate of return: 16.00%
- **Division B**
- Sales: $9,000,000
- Average operating assets: $4,500,000
- Net operating income: $729,000
- Minimum required rate of return: 16.20%
- **Division C**
- Sales: $8,100,000
- Average operating assets: $1,620,000
- Net operating income: $109,350
- Minimum required rate of return: 13.00%
**Required:**
1. **Compute the return on investment (ROI)** for each division using the formula stated in terms of margin and turnover.
2. **Compute the residual income (loss)** for each division.
3. Assume that each division is presented with an investment opportunity that would yield a 16% rate of return:
- a. If performance is being measured by ROI, which division or divisions will probably accept or reject the opportunity?
- b. If performance is being measured by residual income, which division or divisions will probably accept or reject the opportunity?
**Instruction:**
Complete this question by entering your answers in the tabs provided.
***Example Entry for Residual Income:***
An input field is provided to compute the residual income (loss) for each division. Note that the loss amounts should be indicated by a minus sign.
The layout is as follows (beneath which the user would enter relevant figures for each division):
- Division A | Division B | Division C
- Residual income (loss) | [Input] | [Input] | [Input]](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fbf7777fa-aa3c-4ddb-8a8c-67588cdbbf49%2F309ff711-b530-43a2-9c97-66b45ce30a19%2F99w0cof_processed.jpeg&w=3840&q=75)
Transcribed Image Text:**Selected Sales and Operating Data for Three Divisions of Different Structural Engineering Firms**
The data for Division A, Division B, and Division C are as follows:
- **Division A**
- Sales: $5,000,000
- Average operating assets: $1,000,000
- Net operating income: $205,000
- Minimum required rate of return: 16.00%
- **Division B**
- Sales: $9,000,000
- Average operating assets: $4,500,000
- Net operating income: $729,000
- Minimum required rate of return: 16.20%
- **Division C**
- Sales: $8,100,000
- Average operating assets: $1,620,000
- Net operating income: $109,350
- Minimum required rate of return: 13.00%
**Required:**
1. **Compute the return on investment (ROI)** for each division using the formula stated in terms of margin and turnover.
2. **Compute the residual income (loss)** for each division.
3. Assume that each division is presented with an investment opportunity that would yield a 16% rate of return:
- a. If performance is being measured by ROI, which division or divisions will probably accept or reject the opportunity?
- b. If performance is being measured by residual income, which division or divisions will probably accept or reject the opportunity?
**Instruction:**
Complete this question by entering your answers in the tabs provided.
***Example Entry for Residual Income:***
An input field is provided to compute the residual income (loss) for each division. Note that the loss amounts should be indicated by a minus sign.
The layout is as follows (beneath which the user would enter relevant figures for each division):
- Division A | Division B | Division C
- Residual income (loss) | [Input] | [Input] | [Input]
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