Exercise 10-12 Evaluating New Investments Using Return on Investment (ROI) and Residual Income (LO10-1, LO10-2] Selected sales and operating data for three divisions of different structural engineering firms are given as follows: Division A $ 6,300,000 $ 1,260,000 340,200 Division B $ 10,300,000 $ 5,150,000 %24 Division C $ 9,400,000 $ 1,880,000 249,100 17.00% Sales Average operating assets Net operating income Minimum required rate of return 968,200 18.80% 2$ 20.00%
Exercise 10-12 Evaluating New Investments Using Return on Investment (ROI) and Residual Income (LO10-1, LO10-2] Selected sales and operating data for three divisions of different structural engineering firms are given as follows: Division A $ 6,300,000 $ 1,260,000 340,200 Division B $ 10,300,000 $ 5,150,000 %24 Division C $ 9,400,000 $ 1,880,000 249,100 17.00% Sales Average operating assets Net operating income Minimum required rate of return 968,200 18.80% 2$ 20.00%
Managerial Accounting: The Cornerstone of Business Decision-Making
7th Edition
ISBN:9781337115773
Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Chapter11: Performance Evaluation And Decentralization
Section: Chapter Questions
Problem 32E: Use the following information for Exercises 11-31 and 11-32: Washington Company has two divisions:...
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![Exercise 10-12 Evaluating New Investments Using Return on Investment (ROI) and Residual Income
(LO10-1, LO10-2]
Selected sales and operating data for three divisions of different structural engineering firms are given as follows:
Division A
$ 6,300,000
$ 1,260,000
340,200
Division B
$ 10,300,000
$ 5,150,000
968,200
18.80%
Division C
$ 9,400,000
$ 1,880,000
24
Sales
Average operating assets
Net operating income
Minimum required rate of return
2$
249,100
20.00%
17.00%
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 20% 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?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fb090c6ff-a5c2-40f2-bbae-6c260491b5b6%2Ff9e29c4f-be4c-4381-aecb-a751cec1dc16%2Fxgijuzd_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Exercise 10-12 Evaluating New Investments Using Return on Investment (ROI) and Residual Income
(LO10-1, LO10-2]
Selected sales and operating data for three divisions of different structural engineering firms are given as follows:
Division A
$ 6,300,000
$ 1,260,000
340,200
Division B
$ 10,300,000
$ 5,150,000
968,200
18.80%
Division C
$ 9,400,000
$ 1,880,000
24
Sales
Average operating assets
Net operating income
Minimum required rate of return
2$
249,100
20.00%
17.00%
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 20% 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?
![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.
Req 1
Req 2
Req 3A
Req 3B
Compute the return on investment (ROI) for each division using the formula stated in terms of margin and turnover. (Do not
round intermediate calculations. Round your answers to 2 decimal places.)
Margin
Turnover
ROI
Division A
%
Division B
%
Division C
%
%
< Req 1
IReq 2 >](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fb090c6ff-a5c2-40f2-bbae-6c260491b5b6%2Ff9e29c4f-be4c-4381-aecb-a751cec1dc16%2F7n1t2e_processed.jpeg&w=3840&q=75)
Transcribed Image Text: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.
Req 1
Req 2
Req 3A
Req 3B
Compute the return on investment (ROI) for each division using the formula stated in terms of margin and turnover. (Do not
round intermediate calculations. Round your answers to 2 decimal places.)
Margin
Turnover
ROI
Division A
%
Division B
%
Division C
%
%
< Req 1
IReq 2 >
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