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In: Accounting
Problem 9-22B Return on investment and residual income Roswell Company has operating assets of $8,000,000. The...
Problem 9-22B Return on investment and residual income
Roswell Company has operating assets of $8,000,000. The company’s operating income for the most recent accounting period was $600,000. The Lawrence Division of Roswell controls $1,600,000 of the company’s assets and earned $144,000 of its operating income. Roswell’s desired ROI is 7 percent. Roswell has $600,000 of additional funds to invest. The manager of the Lawrence Division believes that his division could earn $50,400 on the additional funds. The highest investment opportunity to any of the company’s other divisions is 8 percent.
Required
If ROI is used as the sole performance measure, would the manager of the Lawrence Division be likely to accept or reject the additional funding? Why or why not?
Would Roswell Company benefit if the manager of the Lawrence Division accepted the additional funds? Why or why not? Round your percentages to one decimal point.
If residual income is used as the sole performance measure, would the manager of the Lawrence Division be likely to accept or reject the additional funding? Why or why not?
Solutions
ekkarill92 answered 1 year agoRelated Solutions
Problem 9-23B Return on investment and residual income Beaumont Trading Company (BTC) has three divisions. BTC...
Problem 9-23B Return on investment
and residual income
Beaumont Trading Company (BTC) has three divisions. BTC has a
desired rate of return of 6.0 percent. The operating assets and
income for each division are as follows:
Divisions
Operating Assets
Operating Income
Americas
$2,250,000
$270,000
Asia
1,250,000
125,000
Europe
1,500,000
120,000
Total
$5,000,000
$??515,000
BTC headquarters has $250,000 of additional cash to invest in
one of its divisions. The division managers have identified
investment opportunities that are expected to yield the...
Problem 9-21B Comparing return on investment and residual income Gwinnett Corporation operates three investment centers. The...
Problem 9-21B
Comparing return on investment and residual
income
Gwinnett Corporation operates three investment centers. The
following financial statements apply to the investment center named
Rite Division:
RITE DIVISION
Income Statement
For the Year Ended December 31, 2018
Sales revenue
$ 300,000
Cost of goods sold
(180,000)
Gross margin
120,000
Operating expenses
Selling expenses
(15,000)
Administrative expense
(5,000)
Operating income
100,000
Nonoperating expense
Interest expense
(10,000)
Net income
$ 90,000
RITE DIVISION
Balance Sheet
As of December 31, 2018
Assets...
Problem 9-21B Comparing return on investment and residual income Gwinnett Corporation operates three investment centers. The...
Problem 9-21B Comparing return on
investment and residual income
Gwinnett Corporation operates three investment centers. The
following financial statements apply to the investment center named
Rite Division:
RITE DIVISION
Income Statement
For the Year Ended December 31, 2018
Sales revenue
$ 300,000
Cost of goods sold
??(180,000)
Gross margin
120,000
Operating expenses
Selling expenses
(15,000)
Administrative expense
(5,000)
Operating income
100,000
Nonoperating expense
Interest expense
???(10,000)
Net income
$ 90,000
RITE DIVISION
Balance Sheet
As of December 31, 2018
Assets...
Return on Investment and Residual Income Johnson Company has two sources of funds: long-term debt and...
Return on Investment and Residual Income
Johnson Company has two sources of funds: long-term debt and equity
capital. Johnson Company has profit centers in the following
locations with the following net incomes and total assets:
Net Income
Assets
Las Vegas
$1,280,000
$4,000,000
Dallas
1,520,000
8,000,000
Tampa
2,360,000
12,000,000
a. Calculate ROI for each profit center and rank them from
highest to lowest based on ROI.
Round ROI to the nearest whole percentage.
ROI
Rank
Las Vegas
Answer
Answer123
Dallas
Answer...
Return on Investment and Residual Income Johnson Company has two sources of funds: long-term debt and...
Return on Investment and Residual Income
Johnson Company has two sources of funds: long-term debt and equity
capital. Johnson Company has profit centers in the following
locations with the following net incomes and total assets:
Net Income
Assets
Las Vegas
$1,310,000
$4,000,000
Dallas
1,550,000
8,000,000
Tampa
2,390,000
12,000,000
a. Calculate ROI for each profit center and rank them from
highest to lowest based on ROI.
Round ROI to the nearest whole percentage.
ROI
Rank
Las Vegas
Answer
Answer
Dallas
Answer...
Margin, Turnover, Return on Investment, Average Operating Assets Elway Company provided the following income statement for...
Margin, Turnover, Return on Investment, Average Operating
Assets
Elway Company provided the following income statement for the
last year:
Sales
$749,320,000
Less: Variable expenses
551,128,000
Contribution margin
$198,192,000
Less: Fixed expenses
198,192,000
Operating income
$0
At the beginning of last year, Elway had $38,624,000 in
operating assets. At the end of the year, Elway had $41,390,000 in
operating assets.
Required:
1. Compute average operating assets.
$
2. Compute the margin (as a percent) and
turnover ratios for last year. If...
Margin, Turnover, Return on Investment, Average Operating Assets Elway Company provided the following income statement for...
Margin, Turnover, Return on Investment, Average Operating
Assets
Elway Company provided the following income statement for the
last year:
Sales
$859,290,000
Less: Variable expenses
540,984,000
Contribution
margin
$318,306,000
Less: Fixed expenses
195,596,000
Operating income
$122,710,000
At the beginning of last year, Elway had $38,662,000 in
operating assets. At the end of the year, Elway had $41,354,000 in
operating assets.
Required:
1. Compute average operating assets.
$
2. Compute the margin (as a percent) and
turnover ratios for last year. If...
Explain and contrast return on investment and residual income. Provide examples.
Explain and contrast return on investment and residual income.
Provide examples.
What is the Return on Investment for the division below Division Operating Income $300,000 Total Assets...
What is the Return on Investment for the division below
Division
Operating Income
$300,000
Total Assets Jan 1
$900,000
Total Assets Dec 31
$850,000
E10-5 Calculating Return on Investment, Residual Income, Determining Effect of Changes in Sales, Expenses, Invested Assets,...
E10-5 Calculating Return on Investment, Residual Income,
Determining Effect of Changes in Sales, Expenses, Invested Assets,
Hurdle Rate on Each [LO 10-4, 10-5]
Solano Company has sales of $780,000, cost of goods sold of
$510,000, other operating expenses of $38,000, average invested
assets of $2,300,000, and a hurdle rate of 12 percent.
Required:
1. Determine Solano’s return on investment (ROI),
investment turnover, profit margin, and residual income.
(Do not round your intermediate calculations. Enter your
ROI and Profit Margin percentage...
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