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	$	5,100,000		$	9,100,000		$	8,200,000
Average operating assets	$	1,020,000		$	2,275,000		$	1,640,000
Net operating income	$	214,200		$	746,200		$	118,900
Minimum required rate of return		17.00	%		32.80	%		14.00	%

Required:

1. Compute the return on investment (ROI) for each division using the formula stated in terms of margin and turnover. (Round your answers to 2 decimal places.)

	Margin Turnover ROI Division A    %    times    % Division B % times % Division C % times %

2. Compute the residual income (loss) for each division. (Loss amounts should be indicated by a minus sign. Round your "Required rate of return" to 2 decimal places.)

	Division A Division B Division C Average operating assets Required rate of return % % % Required operating income Actual operating income Required operating income (above) Residual income (loss)

3. Assume that each division is presented with an investment opportunity that would yield a 19% rate of return.

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

	Division A    Division B Division C

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

Answer 1