Zachs, a national manufacturer of lawn-mowing and snow-blowing equipment, segments its business according to customer type: professional and residential. The following divisional information was available for the past year: 1(Click the icon to view the information.) Calculate each division's RI. Interpret your results. First, select the formula to calculate residual income (RI). (1) – ( (2) × (3) ) = RI
Zachs, a national manufacturer of lawn-mowing and snow-blowing equipment, segments its business according to customer type: professional and residential. The following divisional information was available for the past year: 1(Click the icon to view the information.) Calculate each division's RI. Interpret your results. First, select the formula to calculate residual income (RI). (1) – ( (2) × (3) ) = RI
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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Question
Zachs,
a national manufacturer of lawn-mowing and snow-blowing equipment, segments its business according to customer type: professional and residential. The following divisional information was available for the past year:1(Click
the icon to view the information.)Calculate each division's RI. Interpret your results.
First, select the formula to calculate residual income (RI).
|
(1)
|
–
|
(
|
(2)
|
×
|
(3)
|
)
|
=
|
RI
|
|
The residential division's RI is
|
|
.
|
The professional division's RI is
|
|
.
|
(4)
1: Data Table
|
Net Sales Revenue
|
Operating Income
|
Average Total Assets
|
---|---|---|---|
Residential
|
$570,000
|
$64,600
|
$190,000
|
Professional
|
1,090,000
|
164,000
|
400,000
|
Management has a
rate of return for each division.
27%
target (1)
Asset turnover ratio
Average total assets
Net sales revenue
Operating income
Target rate of return
(2)
Asset turnover ratio
Average total assets
Net sales revenue
Operating income
Target rate of return
(3)
Asset turnover ratio
Average total assets
Net sales revenue
Operating income
Target rate of return
(4)
Both divisions are
Neither division is
Only the professional division is
Only the residential division is
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