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

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Accounting

Selected sales and operating data for three divisions ofdifferent structural engineering firms are given as follows:
Division A Division B Division C
Sales $ 12,440,000 $ 35,550,000 $ 25,550,000
Average operating assets $ 3,110,000 $ 7,110,000 $ 5,110,000
Net operating income $ 547,360 $ 639,900 $ 740,950
Minimum required rate of return 10.00 % 10.50 % 14.50 %
Required:
1. Compute the return on investment (ROI) for each divisionusing the formula stated in terms of margin and turnover.
2. Compute the residual income (loss) for each division.
3. Assume that each division is presented with an investmentopportunity that would yield a 11% rate of return.
a. If performance is being measured by ROI, which division ordivisions will probably accept or reject the opportunity?
b. If performance is being measured by residual income, whichdivision or divisions will probably accept or reject theopportunity?

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4.3 Ratings (703 Votes)

Answer1Division A Margin Net operating income Sales100 54736012440000100 44 Turnover Sales Average operating assets 124400003110000 4 Return on investment MarginTurnover 444 176 Division B Margin Net operating income Sales100 63990035550000100 18 See Answer

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	Division A			Division B			Division C
Sales	$	12,440,000		$	35,550,000		$	25,550,000
Average operating assets	$	3,110,000		$	7,110,000		$	5,110,000
Net operating income	$	547,360		$	639,900		$	740,950
Minimum required rate of return		10.00	%		10.50	%		14.50	%