Chapter 24, Problem 3PB

Divisional income statements and return on investment analysis

E.F. Lynch Company is a diversified investment company with three operating divisions organized as investment centers. Condensed data taken from the records of the three divisions for the year ended June 30, 20Y8, are as follows:

The management of E.F. Lynch Company is evaluating each division as a basis for planning a future expansion of operations.

Instructions

1. 1. Prepare condensed divisional income statements for the three divisions, assuming that there were no support department allocations.
2. 2. Using the DuPont formula for return on investment, compute the profit margin, investment turnover, and return on investment for each division. Round percentages and the investment turnover to one decimal place.
3. 3. If available funds permit the expansion of operations of only one division, which of the divisions would you recommend for expansion, based on parts (1) and (2)? Explain.