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In: Accounting

Refer to the following data regarding the three departments from Magenta: Bright Magenta Standard Magenta Dark...

Refer to the following data regarding the three departments from Magenta:

Bright Magenta

Standard Magenta

Dark Magenta

Total assets

$ 2,400,000

$ 1,000,000

$ 200,000

Total liability

$2,000,000

$ 800,000

$125,000

Revenues

$ 1,200,000

$ 1,000,000

$ 280,000

Operating profit

$ 240,000

$ 130,000

$ 35,000

The company uses a required rate of return of 12% for its departments. Management wants to evaluate the performance of its three departments for deciding which departmental manager is to be promoted.

Required

  1. Which is the department with (i) the higher Return on Sales (ROS), (ii) the higher Return on Investment (ROI), and (iii) the higher Residual Income (RI)?
  1. The board has set a target ROI of 20% for the Dark Magenta division. What alternatives does the department have for attaining this return?

Solutions

Expert Solution

ekkarill92 answered 2 years ago
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