Exercise $11-12($Algo$)$ Evaluating New Investments Using Return on Investment and Residual Income $[$LO$3,$ LO$4]$

Three divisions of Dalton Limited, a small luxury resort, offer guests a variety of additional services, each which is treated as a separate division for reporting and control purposes. Each division has its own manager. Sales and operating details for the most recent year are shown below for each division:

$$Tours

Dining

Wellness

Sales$$264,000$$$338,000$$$380,000$Average operating assets$$52,800$$$150,800$$$126,900$Operating income$$13,200$$$16,900$$$20,300$Minimum required rate of return$9\%9\%9\%$

Required:

$1.$ Compute the ROI for each division, using the formula stated in terms of margin and turnover ratio.

Note: Round your final answers to $2$ decimal places.

$2.$ Compute the residual income for each division.

$3.$ Assume that each division is presented with an investment opportunity that would yield a rate of return of $14\%.$

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

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