Question

Selected sales and operating data for three divisions of different structural engineering firms are given as follows:

	Division A			Division B			Division C
Sales	$	12,920,000		$	28,920,000		$	26,150,000
Average operating assets	$	3,230,000		$	7,230,000		$	5,230,000
Net operating income	$	516,800		$	462,720		$	758,350
Minimum required rate of return		7.00	%		7.50	%		14.50	%

Required:

1. Compute the return on investment (ROI) for each division using the formula stated in terms of margin and turnover.

2. Compute the residual income (loss) for each division.

3. Assume that each division is presented with an investment opportunity that would yield a 8% rate of return.

a. If performance is being measured by ROI, which division or divisions will probably accept or reject the opportunity?

b. If performance is being measured by residual income, which division or divisions will probably accept or reject the opportunity?

Compute the return on investment (ROI) for each division using the formula stated in terms of margin and turnover. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Margin Turnover ROI Division A Division B Division C Compute the residual income (loss) for each division. (Do not round intermediate calculations. Loss amounts should be indicated by a minus sign.) Division A Division B DivisionC Residual income (loss) Assume that each division is presented with an investment opportunity that would yield a 8% rate of return. If performance is being measured by ROI, which division or divisions will probably accept or reject the opportunity? Division A Division E Division C Assume that each division is presented with an investment opportunity that would yield a 8% rate of return. If performance is being measured by residual income, which division or divisions will probably accept or reject the opportunity? Division A Division B Division C

Answer 1

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Reg 34 : Now, rc}uire Ro Decision グvision! 6.uo./-|Reject Dviionso. Accep Req 3B Residual at required Rol of &-1. ales oetAverage Raquired RqiredResickuat return operafing op Assetsrate 13 戉vision! 26, ISO,0001 7se,SSol 5,230,00 ResidaDecision DivisionQS vo Accapt Division,68Reject 戉visior 339,950 I Accept

Reg 34 : Now, rc}uire Ro Decision グvision! 6.uo./-|Reject Dviionso. Accep Req 3B Residual at required Rol of &-1. ales oetAverage Raquired RqiredResickuat return operafing op Assetsrate 13 戉vision! 26, ISO,0001 7se,SSol 5,230,00 ResidaDecision DivisionQS vo Accapt Division,68Reject 戉visior 339,950 | Accept