Question

#5

Orange Corp. has two divisions: Fruit and Flower. The following information for the past year is available for each division: Sales revenue Cost of goods sold and operating expenses Net operating income Average invested assets Fruit Division Flower Division S 1620,000 S 2,430,000 1,822 500 607,500 S 4,050,000 S 2,430,000 1.134000 486,000 S Orange has established a hurdle rate of 10 percent. Required: 1-a. Compute each division's return on investment (ROl) and residual income for last year. (Enter your ROl answers as a percentage rounded to two decimal places, (i.e., 0.1234 should be entered as 12.34%.)) Fruit Division Flower Division ROl Residual Income (Loss) 1-b. Determine which manager seems to be performing better. Fruit Division Flower Division

Answer 1

Average Opearating Assets Net operating income Minimum Required Rate of Return Fruit Division Flower Division 2A80000 607500 10.00% 4050000 486000 10.00% ROI: Net Income / Operating Assets ROI 12.00%) 25.00% Residual Income Average Operating Assets Minimum Required Rate of Return Minimum Required Return Net Operating income Residual income Fruit DivisionFlower Divisioin 2430000 10% 243000 607500 364500 4050000 10% 405000 486000 81000 Answer (A) Fruit Division Flower Division RCI Residual Income Which division seems To be Perforaming Better 12.00%! 81000 25.00% 364500 Flower Division

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