Question: 23. value: 5.78 points Exercise 9-9 Evaluating New Investments Using Return on Investment (ROI) and Residual Income [LO1, LO2] Selected sales and operating data for
23.
value: 5.78 points
Exercise 9-9 Evaluating New Investments Using Return on Investment (ROI) and Residual Income [LO1, LO2]
| Selected sales and operating data for three divisions of three different companies are given below: |
| Division A | Division B | Division C | |||||||
| Sales | $ | 5,700,000 | $ | 9,700,000 | $ | 8,800,000 | |||
| Average operating assets | $ | 1,140,000 | $ | 4,850,000 | $ | 1,760,000 | |||
| Net operating income | $ | 273,600 | $ | 853,600 | $ | 180,400 | |||
| Minimum required rate of return | 17 | % | 17.6 | % | 14 | % | |||
| Required: | |
| 1. | Compute the return on investment (ROI) for each division, using the formula stated in terms of margin and turnover. (Do not round intermediate calculations. Round your answers to 2 decimal places.) |
| Margin | Turnover | ROI | |
| Division A | % | % | |
| Division B | % | % | |
| Division C | % | % | |
| 2. | Compute the residual income for each division. (Negative amounts should be indicated by a minus sign. Leave no cells blank - be certain to enter "0" wherever required.) |
| Division A | Division B | Division C | |
| Residual income | $ | $ | $ |
| 3. | Assume that each division is presented with an investment opportunity that would yield a rate of return of 19%. |
| a. | If performance is being measured by ROI, which division or divisions will probably accept or reject the opportunity? |
| Division A | (Click to select)AcceptReject |
| Division B | (Click to select)AcceptReject |
| Division C | (Click to select)AcceptReject |
| b. | If performance is being measured by residual income, which division or divisions will probably accept or reject the opportunity? |
| Division A | (Click to select)AcceptReject |
| Division B | (Click to select)RejectAccept |
| Division C | (Click to select)RejectAccept |
23 578 points Exercise 9-9 Evaluating New Investments Using Return on Investment (ROI) and Residual Income [L01, LO2] Selected sales and operating data for three divisions of three different companies are given below: Division A Division B Division C Sales $5,700,000 $9,700,000 $8,800,000 Average operating assets 40,000 $4,850,000 $1,760,000 Net operating income S 273,600 853,600 80,400 Minimum required rate of return 7% 7.6% 4% Required: 1. Compute the return on investment (ROI) for each division, using the formula stated in terms of margin and turnover (Do not round intermediate calculations. Round your answers to 2 decimal places.) Mal Turnover Division A Division B Division C 2. Compute the residual income for each division. (Negative amounts should be indicated by a minus sign. Leave no cells blank be certain to enter "0" wherever required. Division A Division B Division C Residual 3. Assume that each division is presented with an investment opportunity that would yield a rate of return 9% a. If performance is being measured by Roi, which division or divisions will probably accept or reject the opportunity? Click to select Division A Click to select Division B Click to select Division C b. If performance is being measured by residual income, which division or divisions will probably accept or reject the opportunity? Click to select Division A Click to select Division B Click to select Division C
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