Orange Corp. has two divisions: Fruit and Flower. The following information for

Question

Orange Corp. has two divisions: Fruit and Flower. The following information for the past year is available for each division Sales revenue Cost of goods sold and operating expenses Net operating income Average invested assets Fruit Division Flower Division $1,560,000 2,340,000 1.170000_ 1755,000 585,000 $4,875,000 2,437,500 390,000 Orange has established a hurdle rate of 6 percent. Required 1-a. Compute each division's return on investment (ROI) and residual income for last year. (Enter your ROl answers as a percentage rounded to two decimal places, (i.e., 0.1234 should be entered as 12.34%.)) Fruit Division Flower Division ROI Residual Income (Loss) 1-b. Determine which manager seems to be performing better. Fruit Division O Flower Division 2. Suppose Orange is investing in new technology that will increase each division's operating income by $125,000. The total investment required is $2,000,000, which will be split evenly between the two divisions. Calculate the ROl and return on investment for each division after the investment is made. (Enter your ROI answers as a percentage rounded to two decimal places, (i.e., 0.1234 should be entered as 12.34%.)) Fruit Division Flower Division ROI Residual Income (Loss) 3. Which manager will accept the investment. Fruit Division Manager Flower Division Manager

Explanation / Answer

1-a)

1-b) manager of flower division is performing better as it has higher ROI and Residual income as compared to flower division manager.

2_b) after investment

3) fruit division will accept the investment proposal as it's ROI has increased as compared to existing level.

Particulars fruit flower a)Operating income 390000 585000 b)Average invested assets 4875000 2437500 c)ROI=a/b×100 8% 24% d)Hurdle rate 6% 6% e)Normal return=d×b 292500 146250

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