Question

Selected sales and operating data for three divisions of different structural engineering firms are given as follows: Sales Average operating assets Net operating income Minimum required rate of return Division A $12,480,000 $ 3,120,000 $ 561,600 8.00% Division B $ 28, 480,000 $ 7,120,000 $ 512,640 8.508 Division C $20, 480,000 $5, 120,000 $ 532,480 10.40% Required: 1. Compute the return on investment (ROI) for each division using 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 investment opportunity that would yield a 9% rate of return. a. If performance is being measured by ROI, which division or divisions will probably accept or reject the opportunity? b. If performance is being measured by residual income, which division or divisions will probably accept or reject the opportunity? Complete this question by entering your answers in the tabs below. Reg 1 Reg 2 Reg ЗА Req 3B Compute the return on investment (ROI) for each division using the formula stated in terms of margin and turnover. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Margin Turnover ROL Division A Division B Division C

Answer 1

Ques 1
	margin	Turnover	ROI
Division A	4.50%	4.0	18.00%
Division B	1.80%	4.0	7.20%
Division C	2.60%	4.0	10.40%
Division	A	B	C
Net Opertaing income	561,600	512,640	532,480
Sales	12,480,000	28,480,000	20,480,000
% Margin(a/b)	4.50%	1.80%	2.60%
Division	A	B	C
Sales	12,480,000	28,480,000	20,480,000
Average operating Assets	3,120,000	7,120,000	5,120,000
Turnover(a/b)	4.0	4.0	4.0
Ques 2
Division	A	B	C
Average operating Assets	3,120,000	7,120,000	5,120,000
Required rate of return	8.00%	8.50%	10.40%
Required operating income	249,600	605,200	532,480
Actual operating income	561,600	512,640	532,480
Required operating income	249,600	605,200	532,480
Residual income(loss)	312,000	(92,560)	-
Ques 3
a.
Division A	Reject
Division B	Accept
Division C	Reject
Division A	Accept
Division B	Accept
Division C	Reject
Division	A	B	C
Required ROI	9.0%	9.0%	9.0%
Actual ROI	18.0%	7.2%	10.4%
Decision	Reject	Accept	Reject
Required ROI	9.0%	9.0%	9.0%
Actual ROI	8.0%	8.5%	10.4%
Decision	Accept	Accept	Reject