Selected sales and operating data for three divisions of different structural engineering firms are given as follows: Sales Average operating assets Net operating income Minimum required rate of return Division A $ 5,000, 000 $ 1,000, 000 $ Division B $ 9,000, 000 $ 4, 500, 000 %$4 Division C $ 8,100, 000 $ 1,620, 000 24 205, 000 16.00% 729, 000 16.20% 109, 350 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. Req 1 Req 2 Req 3A Req 3B Assume that each division is presented with an investment opportunity that would yield a 16% rate of return. If performance is being measured by ROI, which division or divisions will probably accept or reject the opportunity?
Selected sales and operating data for three divisions of different structural engineering firms are given as follows: Sales Average operating assets Net operating income Minimum required rate of return Division A $ 5,000, 000 $ 1,000, 000 $ Division B $ 9,000, 000 $ 4, 500, 000 %$4 Division C $ 8,100, 000 $ 1,620, 000 24 205, 000 16.00% 729, 000 16.20% 109, 350 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. Req 1 Req 2 Req 3A Req 3B Assume that each division is presented with an investment opportunity that would yield a 16% rate of return. If performance is being measured by ROI, which division or divisions will probably accept or reject the opportunity?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:**Selected sales and operating data for three divisions of different structural engineering firms are given as follows:**
| | Division A | Division B | Division C |
|---------------------|------------|------------|------------|
| **Sales** | $5,000,000 | $9,000,000 | $8,100,000 |
| **Average operating assets** | $1,000,000 | $4,500,000 | $1,620,000 |
| **Net operating income** | $205,000 | $729,000 | $109,350 |
| **Minimum required rate of return** | 16.00% | 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.**
- Req 1
- Req 2
- Req 3A
- Req 3B
**Assume that each division is presented with an investment opportunity that would yield a 16% rate of return. If performance is being measured by ROI, which division or divisions will probably accept or reject the opportunity?**
| | |
|------------|------------|
| **Division A** |
| **Division B** |
| **Division C** |
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