Stuart Technologies, Inc. has three divisions. Stuart has a desired rate of return of 11.0 percent. The operating assets and income for each division are as follows: Operating Assets Operating Divisions Income $ 690,000 960,000 510,000 Printer $110,400 100,800 Copier Fax 68,340 Total $2,160,000 $279,540 Stuart headquarters has $135,000 of additional cash to invest in one of its divisions. The division managers have identified investment opportunities that are expected to yield the following ROls: Expected ROIS for Additional Investments Divisions 12.5% 11.5% Printer Copier Fax 10.5% Required a-1. Calculate the ROI for each division. a-2. Which division manager is currently producing the highest ROI? b. Based on ROI, which division manager would be most eager to accept the $135,000 of investment funds? c. Based on ROI, which division manager would be least likely to accept the $135,000 of investment funds?

Stuart Technologies, Inc. has three divisions. Stuart has a desired rate of return of 11.0 percent. The operating assets and income for each division are as follows: Operating Assets Operating Divisions Income $ 690,000 960,000 510,000 Printer $110,400 100,800 Copier Fax 68,340 Total $2,160,000 $279,540 Stuart headquarters has $135,000 of additional cash to invest in one of its divisions. The division managers have identified investment opportunities that are expected to yield the following ROls: Expected ROIS for Additional Investments Divisions 12.5% 11.5% Printer Copier Fax 10.5% Required a-1. Calculate the ROI for each division. a-2. Which division manager is currently producing the highest ROI? b. Based on ROI, which division manager would be most eager to accept the $135,000 of investment funds? c. Based on ROI, which division manager would be least likely to accept the $135,000 of investment funds?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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The operating income and the amount of invested assets in each division of Conley Industries are as follows: Operating income Invested Assets Retail Division $103,400 $470,000 Commercial Division 105,000 420,000 Internet Division 130,000 500,000 Assume that management has established a 10% minimum acceptable return for invested assets. a. Determine the residual income for each division. Retail Division Commercial Division Internet Division Operating income $103,400 $105,000 $130,000 Minimum acceptable operating income as a percent of invested assets Residual income $ $ $ b. Which division has the most residual income?
The company had an overall return on investment (ROI) of 15% this year (considering all divisions). Next year the Office Products Division has an opportunity to add a new product line that would require an additional investment that would increase average operating assets by $1,000,000. The cost and revenue characteristics of the new product line per year would be: Sales $2,000,000 Variable expenses 60% of sales Fixed expenses $640,000 Required: 1. Compute the Office Products Division's margin, turnover, and ROI for this year. 2. Compute the Office Products Division's margin, turnover, and ROI for the new product line by itself. 3. Compute the Office Products Division's margin, turnover, and ROI for next year assuming that it performs the same as this year and adds the new product line. 4. If you were in Dell Havasi's position, would you accept or reject the new product line? Explain. 5. Why do you suppose headquarters is anxious for the Office Products Division to add the new product…
Tan Corporation of Japan has two regional divisions with headquarters in Osaka and Yokohama. Selected data on the two divisions follow: Required 1X Required 2 Sales Net operating income. Average operating assets Required: 1. For each division, compute the return on investment (ROI). 2. Compute the residual income for each division assuming the company's minimum required rate of return is 15%. Complete this question by entering your answers in the tabs below. ROI Osaka $ 10,500,000 $630,000 $ 3,500,000 Osaka Division For each division, compute the return on investment (ROI). % Yokohama $ 35,000,000 $ 2,800,000 $ 17,500,000 Yokohama %
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Kelfour Enterprises has divided its operations into two divisions. Relevant accounting data for each division is as follows: Divisions Sales Operating Assets Operating Income Western Division $ 330,000 $ 280,000 $ 33,000 Eastern Division $ 480,000 $ 330,000 $ 34,500 Kelfour has an additional $68,000 of funds to invest. The manager of the Western Division believes that she can invest the funds at a rate of return (ROI) of 23.00% while the manager of the Eastern Division has found a new investment opportunity that is expected to yield a 21.00% ROI. Kelfour uses residual income (RI) to evaluate managerial performance. The company wide desired ROI is 19.00%. Based on this information Multiple Choice The manager of the Western Division would accept the $68,000 additional investment opportunity because it would increase the Division's RI by $2,720. The manager of the Eastern Division would accept the $68,000 additional investment…
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