Refer to the attached file: CoursHeroTranscribedText: EXERCISE 1114 Evaluating New Investments Using Return on Investment...
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CoursHeroTranscribedText: EXERCISE 1114 Evaluating New Investments Using Return on Investment (ROI) and Residual Income IE1 L011-1. IEl LO112 06 Selected sales and operating data for three divisions of different structural engineering rms are given as follows: Division A Division B Division C Sales $ 12 ,000,000 $ 14,000,000 $25 ,000,0'00 Average operating assets $3,000,000 $1,000,000 $5,000,000 Net operating income $600,000 $560,000 $800,000 Minimum required rate of return 14% 10% 16% Required? 1. Compute the margin, turnover, and return on investment (ROI) for each division. 2. Compute the residual income for each division. 3. Assume that each division is presented with an investment opportunity that would yield a 15% rate of return. a. If performance is being measured by ROI, which division or divisions will probably accept the opportunity? Reject? Why? b. If performance is being measured by residual income, which division or divisions will probably accept the opportunity? Reject? Why
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