ROI and Residual Income:Basic Computations Watkins Associated Industries is a highly diversified company with three...
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ROI and Residual Income:Basic Computations
Watkins Associated Industries is a highly diversified company with three divisions: Trucking, Seafood, and Construction. Assume that the company uses return on investment and residual income as two of the evaluation tools for division managers. The company has a minimum desired rate of return on investment of 10 percent with a 30 percent tax rate. Selected operating data for three divisions of the company follow.
Trucking Division
Seafood Division
Construction Division
Sales
$1,000,000
$690,000
$900,000
Operating assets
500,000
230,000
380,000
Net operating income
99,000
58,000
57,000
(a) Compute the return on investment for each division. (Round answers to three decimal places.) Trucking ROI = Answer Seafood ROI = Answer Construction ROI = Answer
(b) Compute the residual income for each division.
Net operating income .
Minimum level
Residual income
Answer & Explanation
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