Question

Part 2: Problems Wayne Corp. has three divisions. Each division's required rate of return is 15%. Operating results for 2019 are as follows: Division Wayne Medical Wayne Retail Revenue 150,000,000 200,000,000 Current Assets 6,000,000 2,000,000 Total Assets $125,000,000 $ 50,000,000 Operating income $25,000,000 $11,000,000

Answer 1

	Wayne medical	Wayne Retail
Revenue	$15,00,00,000	$20,00,00,000
Operating income	$2,50,00,000	$1,10,00,000
Total invested Assets	$12,50,00,000	$5,00,00,000
Margin =Net operating income / Revenue	16.67%	5.50%
Turnover =Revenue / Total invested Assets	1.20	4.00
ROI =Margin*Turnover	20.00%	22.00%
Ranking based on ROI(Increasing order)	II	I
Residual income/(Loss) =Net operating income -(Average Invested assets*15%)	$62,50,000	$35,00,000
			Ranking based on Residual Income(Increasing order)	I	II
If I was the manager then I would use Residual income as the performance measurement yardstick as it
takes into considertaion both the Actual return and the required rate of return.Hence it becomes a better
measuement yardstick then ROI as the ROI does not consider the Required rate of return