Orange Corp. has two divisions: Fruit and Flower. The following information for the past year is...

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Orange Corp. has two divisions: Fruit and Flower. The following information for the past year is available for each division

Orange has established a hurdle rate of 10 percent. Required: 1-a. Compute each divisions return on investment (ROI) and res

Orange has established a hurdle rate of 10 percent Required: 1-a. Compute each divisions return on investment (ROI) and resi

business accounting

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Answer 1

Answer #1

ROI = Net Operating income/Average Invested Assets
Residual Income = Operating Income - Average Invested Assets*Minimum required rate of return

	Fruit Division	Flower Division
ROI	12.00%	25.00%
Residual Income	81,000	364,500

Flower Division is performing better

After Investment
	Fruit Division	Flower Division
ROI	12.14%	21.41%
Residual Income	108,000	391,500

FRUIT	Yes, since ROI will increase
FLOWER	No, since ROI will reduce

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Answer 2

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