A multinational corporation has a number of divisions, two of which are the North American Division and the Pacic Rim Division. Data on the two divisions are as follows: Round all rates of return to four signicant digits. Required: 1. Compute residual income for each division. By comparing residual income, is it possible to make a useful comparison of divisional
Round all rates of return to four signiï¬cant digits.
1. Compute residual income for each division. By comparing residual income, is it possible to make a useful comparison of divisional performance? Explain.
2. Compute the residual rate of return by dividing the residual income by the average operating assets. Is it possible now to say that one division outperformed the other? Explain.
3. Compute the return on investment for each division. Can we make meaningful comparisons of divisional performance? Explain.
4. Add the residual rate of return computed in Requirement 2 to the required rate of return.
Compare these rates with the ROI computed in Requirement 3. Will this relationship always be the same?
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...
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Cornerstones of Cost Management
Authors: Don R. Hansen, Maryanne M. Mowen