Orange Corp. has two divisions: Fruit and Flower. The following information for the past year is available for each division:

Orange has established a hurdle rate of 12 percent.

1. Compute each division’s return on investment (ROI) and residual income for last year.
Determine which manager seems to be performing better.
2. Suppose Orange is investing in new technology that will increase each division’s operating income by $144,000. The total investment required is $1,600,000, which will be split evenly between the two divisions. Calculate the ROI and return on investment for each division after the investment is made.
3. Determine whether both managers will support the investment. Explain how their support will differ depending on which performance measure (ROI or residual investment) isused.

  • CreatedFebruary 27, 2015
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