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Jordan Technologies, Inc. has three divisions. Jordan has a desired rate of return of 12.0 percent....

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Accounting

Jordan Technologies, Inc. has three divisions. Jordan has adesired rate of return of 12.0 percent. The operating assets andincome for each division are as follows:

     

DivisionsOperating AssetsOperating Income
Printer$630,000$104,580
Copier900,00099,900
Fax450,00063,000
Total$1,980,000$267,480

Jordan headquarters has $129,000 of additional cash to invest inone of its divisions. The division managers have identifiedinvestment opportunities that are expected to yield the followingROIs:

Expected ROIs for
DivisionsAdditional Investments
Printer13.5%
Copier12.5%
Fax11.5%

  1. . Calculate the residual income:

  1. (1) At the corporate (headquarters) level before the additionalinvestment.

  2. (2) At the division level before the additional investment.

  3. (3) At the investment level.

  4. (4) At the division level after the additional investment.

Answer & Explanation Solved by verified expert
3.8 Ratings (515 Votes)

Divisions Operating Assets Operating Income
Printer 630,000 104,580
Copier 900,000 99,900
Fax 450,000 63,000
Total 1,980,000 267,480
Residual income
Net operating income-(Operating assets*min required rate of return*12%)
ans 1
Residual income
267480-(1980000*12%) 29880
ans 2
in $
Printer 104580-(630000*12%) 28980
Copier 99900-(900000*12%) -8100
Fax 63000-(450000*12%) 9000
ans 3
Residual income after additional investment
(267480+(129000*13.51%)-((1980000+129000)*12%) 31828
In case taken 13.5% rounded off 31815
ROI=267480/1980000*100 13.51
ans 4
in $
Printer (104580+(129000*13.5%))-((630000+129000)*12%) 30915
Copier (99900+(129000*12.5%))-((900000+129000)*12%) -7455
Fax (63000+(129000*11.5%))-((450000+129000)*12%) 8355
If any doubt please comment

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