Exercise 11-12 Evaluating New Investments Using Return onInvestment (ROI) and Residual Income [LO11-1, LO11-2] Selectedsales and operating data for three divisions of differentstructural engineering firms are given as follows: Division ADivision B Division C Sales $ 12,640,000 $ 35,800,000 $ 20,640,000Average operating assets $ 3,160,000 $ 7,160,000 $ 5,160,000 Netoperating income $ 606,720 $ 608,600 $ 577,920 Minimum requiredrate of return 10.00 % 10.50 % 11.20 % Required: 1. Compute thereturn on investment (ROI) for each division using the formulastated in terms of margin and turnover. 2. Compute the residualincome (loss) for each division. 3. Assume that each division ispresented with an investment opportunity that would yield a 11%rate of return. a. If performance is being measured by ROI, whichdivision or divisions will probably accept or reject theopportunity? b. If performance is being measured by residualincome, which division or divisions will probably accept or rejectthe opportunity?
