hree divisions of Jameson Co. report the following sales and operating data: Fitness Training Spa Services Athletic Wear Sales $ 640,000 $ 840,000 $ 700,000 Average operating assets $ 160,000 $ 210,000 $ 140,000 Operating income $ 25, 600 $33,600 $ 35,000 Minimum required rate of return 13 % 15 % 13 % Required: 1. Compute the ROI for each division, using the formula stated in terms of margin and turnover. 2. Compute the residual income for each division. 3. Assume that each division is presented with an investment opportunity that would yield a rate of return of 20%. a. If performance is being measured by ROI, which division or divisions will probably accept the opportunity? b. If performance is being measured by residual income, which division or divisions will probably accept the opportunity?
hree divisions of Jameson Co. report the following sales and operating data: Fitness Training Spa Services Athletic Wear Sales $ 640,000 $ 840,000 $ 700,000 Average operating assets $ 160,000 $ 210,000 $ 140,000 Operating income $ 25, 600 $33,600 $ 35,000 Minimum required rate of return 13 % 15 % 13 % Required: 1. Compute the ROI for each division, using the formula stated in terms of margin and turnover. 2. Compute the residual income for each division. 3. Assume that each division is presented with an investment opportunity that would yield a rate of return of 20%. a. If performance is being measured by ROI, which division or divisions will probably accept the opportunity? b. If performance is being measured by residual income, which division or divisions will probably accept the opportunity?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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