Selected sales and operating data for three divisions of different structural engineering firms are given as follows: Division A Division B Division C Sales 12440000$ 35550000$ 25550000$ Average operating assets 3110000$ 7110000$ 5110000$ Net operating income 547360$ 639900$ 740950$ Minimum required rate of return 10.00% 10.50% 14.50$ 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 for each division. 3. Assume that each division is presented with an investment opportunity that would yield a 11% rate of return. a.If performance is being measured by ROI, which division or divisions will probably accept the opportunity? Reject? b.If performance is being measured by residual income, which division or divisions will probably accept the opportunity? Reject?
Selected sales and operating data for three divisions of different structural engineering firms are given as follows: Division A Division B Division C Sales 12440000$ 35550000$ 25550000$ Average operating assets 3110000$ 7110000$ 5110000$ Net operating income 547360$ 639900$ 740950$ Minimum required rate of return 10.00% 10.50% 14.50$ 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 for each division. 3. Assume that each division is presented with an investment opportunity that would yield a 11% rate of return. a.If performance is being measured by ROI, which division or divisions will probably accept the opportunity? Reject? b.If performance is being measured by residual income, which division or divisions will probably accept the opportunity? Reject?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Selected sales and operating data for three divisions of different structural engineering firms are given as follows:
| Division A | Division B | Division C | |
| Sales | 12440000$ | 35550000$ | 25550000$ |
| Average operating assets | 3110000$ | 7110000$ | 5110000$ |
| Net operating income | 547360$ | 639900$ | 740950$ |
| Minimum required |
10.00% | 10.50% | 14.50$ |
Required:
1.Compute the
2.Compute the residual income for each division.
3. Assume that each division is presented with an investment opportunity that would yield a 11% rate of return.
a.If performance is being measured by ROI, which division or divisions will probably accept the opportunity? Reject?
b.If performance is being measured by residual income, which division or divisions will probably accept the opportunity? Reject?
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