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Saved Н. Compute return on investment for each of the divisions below (each is an investment center). Which division performe
Compute return on investment for each of the divisions below (each is an investment center). Which division performed the bes
The following information is provided for each division. Investment Center Cameras and camcorders Phones and communications C
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Answer #1
Return on Investment=Net Income/Average Assets
(A) (B) (A)/(B)
Net Income Average Assets Return on Investment
Investment Center
Cameras and Camcorders $                      63,84,000.00 $                              2,66,00,000.00 24.0%
Phone and Communications $                      44,32,500.00 $                              1,97,00,000.00 22.5%
Computer and Accessories $                      41,16,000.00 $                              1,96,00,000.00 21.0%
On the basis of Return on Investment Cametas and Camcorders division perfomed the best.
Residual Income=Net Income-Target Income
Target Income=Average Assets* Target Return
Target Return=14%
Cameras and Camcorders Phone and Communications Computer and Accessories
Average Assets=(A) $                   2,39,00,000.00 $                              2,09,00,000.00 $                            1,88,00,000.00
Target Return=(B) 14% 14% 14%
Target Income=(A)*(B) $                      33,46,000.00 $                                 29,26,000.00 $                                26,32,000.00
Residual Income
Cameras and Camcorders Phone and Communications Computer and Accessories
Net Income=(A) $                      69,00,000.00 $                                 29,26,000.00 $                                  9,00,000.00
Target Income=(B) $                      33,46,000.00 $                                 29,26,000.00 $                                26,32,000.00
Residual Income(Loss)=(A)-(B) $                      35,54,000.00 $                                                       -   $                              -17,32,000.00
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