Question

Selected information about American Industries is presented below. American has three operating divisions and requires a 12% return on all investments:

	Eastern Division				Central Division				Western Division
Revenues	$	1,000,000				?				?
Operating income	$	120,000				?			$	100,000
Operating assets	$	500,000			$	300,000				?
Margin		?				12	%			?
Turnover		?				1	turn			2	turns
ROI		?				?				?
Residual income		?				?			$	25,000

Calculate the missing amounts for each division.

Answer 1

	Eastern Division	Central Division	Western Division
Revenues	1,000,000	300,000	520,833
Operating income	120,000	36,000	100,000
Operating assets	500,000	300,000	1,041,667
Margin	12.00%	12%	19.20%
Turnover	0.50	1	2.00
ROI	60,000	36,000	125,000
Residual income	60,000	-	25,000
Turover = Total Sales / Average Operating assets
Residual income = ROI(IN DOLLAR) - Minimum rate of return(DOLLAR)
ROI (Dollar)= Average operating asset * ROI