Selected sales and operating data for three divisions of different structural engineering firms are given as follows: 2. Compute the residual income (loss) for each division. 3. Assume that each division is presented with an investment opportunity that would yield a 7% 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? Division A Division B Division C Sales $ 15,950,000 $ 28,760,000 $ 25,950,000 Average operating assets $ 3,190,000 $ 7,190,000 $ 5,190,000 Net operating income $ 733,700 $ 373,880 $ 752,550 Minimum required rate of return
Selected sales and operating data for three divisions of different structural engineering firms are given as follows: 2. Compute the residual income (loss) for each division. 3. Assume that each division is presented with an investment opportunity that would yield a 7% 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? Division A Division B Division C Sales $ 15,950,000 $ 28,760,000 $ 25,950,000 Average operating assets $ 3,190,000 $ 7,190,000 $ 5,190,000 Net operating income $ 733,700 $ 373,880 $ 752,550 Minimum required rate of return
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 as follows:
2. Compute the residual income (loss) for each division.
3. Assume that each division is presented with an investment opportunity that would yield a 7%
a. If performance is being measured by
b. If performance is being measured by residual income, which division or divisions will probably accept or reject the opportunity?
| Division A | Division B | Division C | |||||||
| Sales | $ | 15,950,000 | $ | 28,760,000 | $ | 25,950,000 | |||
| Average operating assets | $ | 3,190,000 | $ | 7,190,000 | $ | 5,190,000 | |||
| Net operating income | $ | 733,700 | $ | 373,880 | $ | 752,550 | |||
| Minimum required rate of return | 6.00 | % | 6.50 | % | 14.50 | % | |||
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