Question

Return on investment The operating income and the amount of invested assets in each division of Conley Industries are as follows: Operating Income Invested Assets Retail Division Commercial Division Internet Division $9,600,000 12,100,000 $40,000,000 55,000,000 6,480,000 36,000,000 a. Compute the return on investment for each division Division Percent Retail Division Commercial Division Internet Division b. Which division is the most profitable per dollar invested?

Answer 1

Return of Investment = Net Income * 100 / Invested asset. Particulars A. Income from Operations B. Invested Asset Return of Investment (A* 100 /B) Retail Divison Commercial Divison Internet Divison | $ 9,600,000 $ 12,100,000 $ 6,480,000 $40,000,000 $ 55,000,000 $ 36,000,000 24% 22% 18% Retail Division is more profitable per dollar invested. Residual Income = Net Operating Income - Invested Asset * Rate of Return Particulars A. Income from Operations B. Invested Asset C. Rate of Return Return of Investment [A-(B*C] Retail Divison Commercial Divison Internet Divison $ 9,600,000 12,100,000 $ 6,480,000 $40,000,000 $ 55,000,000 $ 36,000,000 15% 15% 15% $ 3,600,000 $ 3,850,000 $ 1,080,000 Commercial Division is more Residual income of $ 3,850,000.