Selected sales and operating data for three divisions of different structural engineering firms are given as follows:
Division A | Division B | Division C | |||||||
Sales | $ | 6,500,000 | $ | 10,500,000 | $ | 9,600,000 | |||
Average operating assets | $ | 1,300,000 | $ | 5,250,000 | $ | 1,920,000 | |||
Net operating income | $ | 364,000 | $ | 1,008,000 | $ | 273,600 | |||
Minimum required rate of return | 21.00 | % | 19.20 | % | 18.00 | % | |||
Required:
1. Compute the return on investment (ROI) for each division using the formula stated in terms of margin and turnover.
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2. Compute the residual income (loss) for each division.
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3. Assume that each division is presented with an investment opportunity that would yield a 20% rate of return.
a. If performance is being measured by ROI, which division or divisions will probably accept or reject the opportunity?
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b. If performance is being measured by residual income, which division or divisions will probably accept or reject the opportunity?
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1). Margin = Net Operating Income / Sales
Turnover = Sales / Average Operating Assets
ROI = Margin * Turnover = Net Operating Income / Sales * Sales /
Average Operating Assets = Net Operating Income / Average Operating
Assets
2). Residual Income (loss) of each division:
Selected sales and operating data for three divisions of different structural engineering firms are given as...
Selected sales and operating data for three divisions of different structural engineering firms are given as follows: Division A Division B Division C Sales $ 6,500,000 $ 10,500,000 $ 9,600,000 Average operating assets $ 1,300,000 $ 5,250,000 $ 1,920,000 Net operating income $ 364,000 $ 1,008,000 $ 273,600 Minimum required rate of return 21.00 % 19.20 % 18.00 % Required: 1. Compute the return on investment (ROI) for each division using the formula stated in terms of margin and turnover....
Selected sales and operating data for three divisions of different structural engineering firms are given as follows: Division A Division B Division C Sales $ 5,700,000 $ 9,700,000 $ 8,800,000 Average operating assets $ 1,140,000 $ 4,850,000 $ 1,760,000 Net operating income $ 273,600 $ 853,600 $ 180,400 Minimum required rate of return 17.00 % 17.60 % 14.00 % Required: 1. Compute the return on investment (ROI) for each division using the formula stated in terms of margin and turnover....
Selected sales and operating data for three divisions of different structural engineering firms are given as follows: Division A Division B Division C Sales $ 5,700,000 $ 9,700,000 $ 8,800,000 Average operating assets $ 1,140,000 $ 4,850,000 $ 1,760,000 Net operating income $ 273,600 $ 853,600 $ 180,400 Minimum required rate of return 17.00 % 17.60 % 14.00 % Required: 1. Compute the return on investment (ROI) for each division using the formula stated in terms of margin and turnover....
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