ROI and Residual Income: Basic Computations Watkins Associated Industries is a h
ID: 2456604 • Letter: R
Question
ROI and Residual Income: Basic Computations
Watkins Associated Industries is a highly diversified company with three divisions: Trucking, Seafood, and Construction. Assume that the company uses return on investment and residual income as two of the evaluation tools for division managers. The company has a minimum desired rate of return on investment of 10 percent with a 30 percent tax rate. Selected operating data for three divisions of the company follow.
(a) Compute the return on investment for each division. (Round answers to three decimal places.)
Trucking Division Seafood Division Construction Division Sales $ 1,200,000 $ 750,000 $ 900,000 Operating assets 600,000 250,000 350,000 Net operating income 116,000 66,000 63,000Explanation / Answer
The company has a minimum desired rate of return on investment of 10 percent with a 30 percent tax rate. Selected operating data for three divisions of the company follow.
The Return of Investment = [Net Operating Income * (1 - Tax Rate)] / Operating Assets (the only Investment)
Trucking ROI = 116000 * 0.70 / 600000 = 13.534 %
Seafood ROI = 66000 * 0.70 / 250000 = 18.480 %
Construction ROI = 63000 * 0.70 / 350000 = 12.600 %
Trucking Division Seafood Division Construction Division Sales $ 1,200,000 $ 750,000 $ 900,000 Operating assets 600,000 250,000 350,000 Net operating income 116,000 66,000 63,000Related Questions
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