70.2K

Verified Solution

Link Copied!

Selected sales and operating data for three divisions of different structural engineering firms are given as follows:

	Division A			Division B			Division C
Sales	$	5,700,000		$	9,700,000		$	8,800,000
Average operating assets	$	1,140,000		$	4,850,000		$	1,760,000
Net operating income	$	273,600		$	853,600		$	180,400
Minimum required rate of return		17.00	%		17.60	%		14.00	%

Required:
1.	Compute the return on investment (ROI) for each division using the formula stated in terms of margin and turnover. (Round your Turnover answers to 2 decimal places. Round your Margin and ROI percentage answers to 2 decimal places (i.e., 0.1234 should be entered as 12.34).)

Margin Turnover ROI

Division A

%%

Division B

%%

Division C%%

2.	Compute the residual income (loss) for each division. (Loss amounts should be indicated by a minus sign. Round your Required Rate of Return percentage answers to 2 decimal places (i.e., 0.1234 should be entered as 12.34).)
	Division A Division B Division C Average operating assets Required rate of return % % % Required operating income Actual operating income Required operating income (above) Residual income (loss)

3.	Assume that each division is presented with an investment opportunity that would yield a 19% rate of return.

Division A Division B Division C

a.	If performance is being measured by ROI, which division or divisions will probably accept or reject the opportunity?
	Division A Division B Division C

b.	If performance is being measured by residual income, which division or divisions will probably accept or reject the opportunity?

Answer & Explanation Solved by verified expert

See Answer