(J) Selected sales and operating data for three divisions of different structural engineering firms are given as follows: Division ADivision BDivision CSales$ 12,120,000$ 28,120,000$ 20,120,000Average operating assets$ 3,030,000$ 7,030,000$ 5,030,000Net operating income$ 496,920$ 449,920$ 503,000Minimum required rate of return7.00%7.50%10.00% Required: 1. Compute the margin, turnover, and return on investment (ROI) for each division. 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 the opportunity? b. If performance is being measured by residual income, which division or divisions will probably accept the opportunity
(J)
Selected sales and operating data for three divisions of different structural engineering firms are given as follows:
Division ADivision BDivision CSales$ 12,120,000$ 28,120,000$ 20,120,000Average operating assets$ 3,030,000$ 7,030,000$ 5,030,000Net operating income$ 496,920$ 449,920$ 503,000Minimum required rate of return7.00%7.50%10.00%
Required:
1. Compute the margin, turnover, and return on investment (ROI) for each division.
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%
a. If performance is being measured by ROI, which division or divisions will probably accept the opportunity?
b. If performance is being measured by residual income, which division or divisions will probably accept the opportunity
Step by step
Solved in 5 steps with 7 images
