I have given you everthing that I could have . I cannot give you more info. Fran

Question

I have given you everthing that I could have . I cannot give you more info.

Franklin Technologles, Inc. has three divislons. Franklin has a desired rate of return of 12.0 percent The operating assets and Income for each diMsion are as follows: Operating Incone Divisions isions Operat $ 610,808 886,888 436,808 $182,488 Printer Copier Fax Total $1,928,888 $262,988 Franklin headquarters has $127000 of additional cash to Invest In one of lts divisions. The divislon managers have Identified Investment opportunltles that are expected to yleld the following ROls: Divisions Printer Copier Fax Expected ROIs for Additional Investnents 13.5% 12.5% 11.5% Required a-1. Calculate the ROI for each divslon. a-2. Whlch division manager Is currently producing the highest ROI? b. Based on ROI, which division manager would be most eager to accept the $127000 of Investment funds? c. Based on ROI, which divislon manager would be least lkely to accept the $127,000 of Investment funds? d. Which division offers the best Investment opportunlty for Franklin? g. Calculate the resldual Income (1) At the corporate (headquarters) level before the additional Investment. 2) At the dlvMslon level before the addltional Investment. 3) At the Investment level. (4) At the division level after the additional Investment.

Explanation / Answer

Calculations of return on investment (ROI)

ROI =operating income /oprating assets

  

a-2) aanswers   

3) calculation of residual income at corporate level before additional investment of $127000

RI = oprating income at corporate - (operating assets at corporate *cost of capital/100)

= $262980- ( $1920,000*20/100)

= $262980- $384,000= ($121020)negetive

4(Calculations of residual income at various levels

=$102480($610,000*20/100)

=$-19520

=$99440(880,000*20/100)

=($76560)

=$61060-(430,000*20/100)

=($24940)

=(127000*13.5/100) - (127000*20/100)

=17145 -25400=($8255)

=(127000*12.5/100)- (127000*20/100)

= ($ 9525)   

=(127000*11.5/100) -(127000*20/100)

=($10795)

=$119625-($737000*20/100)

=($27775)

=$115315 - (1007000*20/100)

=($86085)

=$75665 - ($557000*20/100)

=($35735)

Notes:

Calculation of opening income to the additional investmen

Printer= 127000*13.5/100=17145

Copier=127000*12.5/100=15875

Fax =127000*11.5/100=14605

When you are calculating the residual income after the additional investment you should add this operating income to the previous operating income

Oprating assets after additional investment

Printer $ 737000

Copier $1007000

Fax $ 557000

Operating income after additional investment

Printer $119625

Copier $115315

Fax $75665

Thank you  

Division ROI printer =$102480/$610,000=0.168 or 16.8percent Copier =$99440/$880,000=0.113 or 11.3percent Fax =$61060/$430,000=0.142 or 14.2percent

Related Questions

Navigate

• Browse (All)
• Browse I
• Subjects

---

---

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