The income from operations and the amount of invested assets in each division of Devon Industries are as follows:

	Income from Operations		Invested Assets
Sporting Goods Division	$162,000		810,000
Health Care Division	122,400		720,000
Commercial Division	51,000		340,000

Assume that management has established a 12% minimum acceptable rate of return for invested assets.

a. Determine the residual income for each division.

	Sporting Goods Division			Health Care Division			Commercial Division
Income from operations	$162,000			$122,400			$51,000
Minimum amount of income from operations
Residual income

The condensed income statement for the International Division of King Industries Inc. is as follows (assuming no service department charges):

Sales	$692,000
Cost of goods sold	311,400
Gross profit	$380,600
Administrative expenses	173,000
Income from operations	$207,600

The manager of the International Division is considering ways to increase the rate of return on investment.

a. Using the DuPont formula for rate of return on investment, determine the profit margin, investment turnover, and rate of return on investment of the International Division, assuming that $1,730,000 of assets have been invested in the International Division. Round the investment turnover to one decimal place.

Profit margin
Investment turnover
Rate of return on investment

b. If expenses could be reduced by $34,600 without decreasing sales, what would be the impact on the profit margin, investment turnover, and rate of return on investment for the International Division? Round the investment turnover to one decimal place.

Profit margin
Investment turnover
Rate of return on investment

Commodore Entertainment recently reported sector income from operations, revenue, and invested assets as follows:

	Income from Operations		Revenue		Invested Assets
Media Networks	$169,597		$749,600		$937,000
Parks and Resorts	68,480		384,000		640,000
Studio Entertainment	14,874		281,400		402,000
Consumer Products	134,796		507,600		282,000

Use the DuPont formula to determine the rate of return on investment for the four Commodore Entertainment sectors. Round Profit Margin, ROI to one decimal place and Investment Turnover to two decimal places.

	Profit Margin	Investment Turnover	ROI
Media Networks
Parks and Resorts
Studio Entertainment
Consumer Products

Starwood Hotels & Resorts Worldwide provides lodging services around the world. The company is separated into two major divisions.

• Hotel Ownership: Hotels owned and operated by Starwood.
• Vacation Ownership: Resort properties developed, owned, and operated for timeshare vacation owners.

Financial information for each division, from a recent annual report, is as follows (in millions):

		Hotel Ownership		Vacation Ownership
Revenues		$4,383		$ 688
Income from operations		571		105
Total assets		6,440		2,139

a. Use the DuPont formula to determine the return on investment for each of the Starwood business divisions. Round interim calculations to two decimal places. Round your final answers to one decimal place.

Division	Return on Investment
Hotel Ownership	fill in the blank 1 %
Vacation Ownership	fill in the blank 2 %

b. Determine the residual income for each division, assuming a minimum acceptable income of 5% of total assets. Round minimal acceptable return to the nearest million dollars. Enter your answers in millions of dollars. Use the minus sign to indicate a negative residual income.

Division	Residual income
Hotel Ownership	$
Vacation Ownership	$

Answer rating: 100% (QA)

Sporting goods Healthcare Commercial Income from Operations 126000 117600 49600 Minimum amount of re... View the full answer