Question

Return on Investment The income from operations and the amount of invested assets in each division of Beck Industries are as follows: Income from Operations Invested Assets Retail Division $77,900 $410,000 75,600 360,000 Commercial Division Internet Division 61,600 440,000 a. Compute the return on investment for each division. (Round to the nearest whole number.) Division Retail Division Commercial Division Internet Division Percent % 0 % b. Which division is the most profitable per dollar invested? Commercial Division Internet Division Retail Division

Answer all and I will give thumbs up

Answer 1

Answer to Question 1:

Answer a.

Retail Division:

Return on Investment = Income from Operations / Invested Assets
Return on Investment = $77,900 / $410,000
Return on Investment = 19%

Commercial Division:

Return on Investment = Income from Operations / Invested Assets
Return on Investment = $75,600 / $360,000
Return on Investment = 21%

Internet Division:

Return on Investment = Income from Operations / Invested Assets
Return on Investment = $61,600 / $440,000
Return on Investment = 14%

Answer b.

Commercial Division is the most profitable per dollar invested.

Answer to Question 2:

Case A:

Return on Investment = Income from Operations / Invested Assets
Return on Investment = $197,500 / $790,000
Return on Investment = 25%

Minimum Acceptable Income from Operations = Minimum Return * Invested Assets
Minimum Acceptable Income from Operations = 14% * $790,000
Minimum Acceptable Income from Operations = $110,600

Residual Income = Income from Operations - Minimum Acceptable Income from Operations
Residual Income = $197,500 - $110,600
Residual Income = $86,900

Case B:

Residual Income = Income from Operations - Minimum Acceptable Income from Operations
$19,200 = Income from Operations - $57,600
Income from Operations = $76,800

Return on Investment = Income from Operations / Invested Assets
Return on Investment = $76,800 / $480,000
Return on Investment = 16%

Minimum Acceptable Income from Operations = Minimum Return * Invested Assets
$57,600 = Minimum Return * $480,000
Minimum Return = 12%

Case C:

Return on Investment = Income from Operations / Invested Assets
0.14 = Income from Operations / $370,000
Income from Operations = $51,800

Residual Income = Income from Operations - Minimum Acceptable Income from Operations
Residual Income = $51,800 - $37,000
Residual Income = $14,800

Minimum Acceptable Income from Operations = Minimum Return * Invested Assets
$37,000 = Minimum Return * $370,000
Minimum Return = 10%

Case D:

Return on Investment = Income from Operations / Invested Assets
Return on Investment = $56,000 / $280,000
Return on Investment = 20%

Minimum Acceptable Income from Operations = Minimum Return * Invested Assets
Minimum Acceptable Income from Operations = 12% * $280,000
Minimum Acceptable Income from Operations = $33,600

Residual Income = Income from Operations - Minimum Acceptable Income from Operations
Residual Income = $56,000 - $33,600
Residual Income = $22,400