Homework Answers
Northern Division
Return on investment = Net operating income / Average operating assets
= 1,054,100/5,000,000
= 21%
Residual income = Net operating income - ( Average operating assets x Required rate of return)
= 1,054,100-(5,000,000 x 16%)
= 1,054,100-800,000
= $254,100
Southern Division
Return on investment = Net operating income / Average operating assets
= 653,500/2,800,000
= 23%
Residual income = Net operating income - ( Average operating assets x Required rate of return)
= 653,500-(2,800,000 x 16%)
= 653,500-448,000
= $205,500
| Northern | Southern | |
| Return on Investment | 21% | 23% |
| Residual income | $254,100 | $205,500 |
Kindly comment if you need further assistance. Thanks‼!
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