Melbourne Ltd has three divisions their activities are explained below:

1. Home plumbing division manufactures copper pipes for tradespersons and home renovators. These areas of the economy are in decline. The home plumbing division is operating with spare capacity and is using machinery that was acquired many years ago.
2. The industrial pipes division produces pipes for heavy manufacturing industries involved in chemical refining and gas exploration. This division is machine intensive, using advanced computerised equipment to manufacture pipes to precise tolerance levels.
3. The hardware division operates a hardware store.

The following data relate to the three divisions of the company. The companys minimum required rate of return is 8 per cent.

Home plumbing division Industrial pipes division Hardware division

Sales revenue $25 000 000 5 000 000 2 000 000

Profit $5 000 000 $1 000 000 5 00 000

Average investment $10 000 000 $7 936 508 4 000 000

Required:

1. For each division calculate:
   1. Return on sales (4 marks)
   2. Investment turnover (4 marks)
   3. ROI (4 marks)
   4. Residual income (4 marks)
2. Does ROI provide a suitable basis for comparing the performance of these three divisions? Explain your answer. (4 marks)