Spirit Inc. has provided us with the following information for its three divisio

Question

Spirit Inc. has provided us with the following information for its three divisions for the year 2015:

Division A

Division B

Division C

Sales

       1,250,500

       245,000

    775,000

Operating Assets

       1,425,000

       500,000

    985,000

Net Operating Income

           189,000

          84,500

    145,500

The company has a minimum desired return of 8% and their tax rate is 30%.

Required: MUST SHOW ALL WORK

Compute the return on investment for each division.

Compute the residual income for each division.

Division A

Division B

Division C

Sales

       1,250,500

       245,000

    775,000

Operating Assets

       1,425,000

       500,000

    985,000

Net Operating Income

           189,000

          84,500

    145,500

Explanation / Answer

132300 -(1425000*.08)]

= 132300-114000

59150-(500000*.08)

=59150- 40000

101850-(985000*.08)

=101850-78800

A B C Net operating income 189,000 84,500 145,500 net operating income after tax = before tax income (1-tax) 132300   [189000(1-.30)] 59150 [84500(1-.3)] 101850 [145500(1-.3)] Return on investment = After tax income /asset 9.28 % [132300/1425000] 11.83 % [59150/500000] 10.34 %[101850/985000] Residual income = [After tax income -(Operaing asset*require rate) ]

132300 -(1425000*.08)]

= 132300-114000

59150-(500000*.08)

=59150- 40000

101850-(985000*.08)

=101850-78800

= 18300 19150 =23050

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.