Problem 12-4 Comparing Performance Using ROI (LO2 - CC4, 6)

Guenther Corporation uses the return on investment (ROI) measure to evaluate its managers. A summary of the performance of two divisions is given below Average operating assets Net income Division A Division B S 150,000 S210,000 35,700 27,000 The minimum required return on operating assets for Guenther n is 15%. Required: 1-a. Compute the retum on investment of Division A and Division B Division Return on investment 1-b.According to Guenther's senior management, which division is the better performer? O Division A Division B 2-a. Compute the residual income of Division A and Division B. Division sion B Residual income 2-b.According to Guenther's senior management, which division is the better performer? O Division A Division B 3. Suppose the manager of Division A were offered a one-year project that would increase his average operating assets by $90,000 and increase profit by $14,400 a. Would the manager accept the project under the current method of performance evaluation? Accept Reject b. Using your alternative measure of performance evaluation (as in part 2 above), do you think the manager should accept the project? Accept Reject