Selected sales and operating data for three divisions of different structural engineering firms are given as follows: 2. Compute the residual income (loss) for each division. 3. Assume that each division is presented with an investment opportunity that would yield a 7% 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? Division A Division B Division C Sales $ 15,950,000 $ 28,760,000 $ 25,950,000 Average operating assets $ 3,190,000 $ 7,190,000 $ 5,190,000 Net operating income $ 733,700 $ 373,880 $ 752,550 Minimum required rate of return
Selected sales and operating data for three divisions of different structural engineering firms are given as follows: 2. Compute the residual income (loss) for each division. 3. Assume that each division is presented with an investment opportunity that would yield a 7% 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? Division A Division B Division C Sales $ 15,950,000 $ 28,760,000 $ 25,950,000 Average operating assets $ 3,190,000 $ 7,190,000 $ 5,190,000 Net operating income $ 733,700 $ 373,880 $ 752,550 Minimum required rate of return
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter10: Decentralization: Responsibility Accounting, Performance Evaluation, And Transfer Pricing
Section: Chapter Questions
Problem 16E: A multinational corporation has a number of divisions, two of which are the North American Division...
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Selected sales and operating data for three divisions of different structural engineering firms are given as follows:
2. Compute the residual income (loss) for each division.
3. Assume that each division is presented with an investment opportunity that would yield a 7%
a. If performance is being measured by
b. 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 | |||||||
| Sales | $ | 15,950,000 | $ | 28,760,000 | $ | 25,950,000 | |||
| Average operating assets | $ | 3,190,000 | $ | 7,190,000 | $ | 5,190,000 | |||
| Net operating income | $ | 733,700 | $ | 373,880 | $ | 752,550 | |||
| Minimum required rate of return | 6.00 | % | 6.50 | % | 14.50 | % | |||
|
|
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