The manager of the Fleet division of Potlatch Automotive is evaluated on her division’s return on investment and residual income. The company requires that all divisions generate a minimum return on invested assets of 8 percent. Consistent failure to achieve this minimum target is grounds for the dismissal of a division manager. The annual cash bonus paid to division managers is 1 percent of residual income in excess of $100,000. The Fleet division’s operating margin for the year was $8,729,000, during which time its average invested capital was $61,442,000.

Required:

a. Compute the Fleet division’s return on investment and residual income.

b. Will the manager of the Fleet division receive a bonus for her performance? If so, how much will it be?

c. In reporting her investment center’s performance for the past 10 years, the manager of the Fleet division accounted for the depreciation of her division’s assets by using an accelerated depreciation method allowed for tax purposes. As a result, virtually all of the assets under her control are fully depreciated. How would the use of the accelerated method of depreciation affect ROI?

Answer rating: 100% (QA)

a ROI Net income Total investment 872900061442000 1421 RESI... View the full answer