Allenby Company has operating assets of $19,500,000. The company’s operating inc

Question

Allenby Company has operating assets of $19,500,000. The company’s operating income for the most recent accounting period was $2,600,000. The Fisher Division of Allenby controls $8,260,000 of the company’s assets and earned $1,210,000 of its operating income. Allenby’s desired ROI is 9 percent. Allenby has $870,000 of additional funds to invest. The manager of the Fisher division believes that his division could earn $130,000 on the additional funds. The highest investment opportunity to any of the company’s other divisions is 10 percent.

Calculate the ROI of Fisher Division. (Round your answers to 2 decimal places. Omit the "%" sign in your response.)

Calculate Fisher’s residual income from the new investment opportunity. (Omit the "$" sign in your response.)

Calculate the ROI of Fisher Division. (Round your answers to 2 decimal places. Omit the "%" sign in your response.)

Explanation / Answer

1 Allen Company Total Fisher Division Operating Assets 19500000 8260000 Operating income 2600000 1210000 Surplus Funds 870000 130000 Desired Return 9% Opportunity cost 10% Calculation of ROI of Fisher Division 1 14.65 2 14.94 3 14.68 1A Residual Income of Fisher After Investment 1340000

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