Use the information in Brief Exercise 25.2 to compute the ROI for the Pennsylvania factory using total assets and assets net of depreciation. Now find residual income if the company expects an 18 percent return on total assets. Is the Pennsylvania factory performing up to management’s expectations?
Brief Exercise 25.2
Year 2
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,000,000
Operating expenses.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 640,000
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,200,000
Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . 220,000