Selected sales and operating data for three divisions of different structural engineering firms are given as follows:

Division A Division B Division C

Sales $ $12,300,000$ $ $14,350,000$ $ $25,625,000$

Average operating assets $ $3,075,000$ $ $7,175,000$ $ $5,125,000$

Net operating income $ $615,000$ $ $574,000$ $ $820,000$

Minimum required rate of return $14\%10\%16\%$

 

 

Required:

$1.$ Compute the return on investment $($ROI$)$ for each division using the formula stated in terms of margin and turnover.

$2.$ Compute the residual income $($loss$)$ for each division.

$3.$ Assume that each division is presented with an investment opportunity that would yield a $15\%$ rate of return.

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

b$.$ If performance is being measured by residual income, which division or divisions will probably accept or reject the opportunity?

Answer rating: 100% (QA)

Return on Investment ROI CalculationROI Net Operating Income Average Oper... View the full answer