Chapter 10, Problem 10.20AE

Compute and interpret the expanded ROI equation (Learning Objective 3)

Rogers, a national manufacturer of lawn-mowing and snow-blowing equipment, segments its business according to customer type: Professional and Residential. Assume the following divisional information was available for the past year (in thousands of dollars):

Assume that management has a 25% target rate of return for each division.

Requirements

Round all of your answers to four decimal places.

1. 1. Calculate each division’s ROI.
2. 2. Calculate each division’s sales margin. Interpret your results.
3. 3. Calculate each division’s capital turnover. Interpret your results.
4. 4. Use the expanded ROI formula to confirm your results from Requirement 1. What can you conclude?
5. 5. Calculate each division’s residual income (RI). Interpret your results.