Luke Company has three divisions: Peak, View, and Grand. The company has a hurdl

Question

Luke Company has three divisions: Peak, View, and Grand. The company has a hurdle rate of 6.51 percent. Selected operating data for the three divisions follow:  

Required:
1. Compute the return on investment for each division. (Enter your ROI answers as a percentage rounded to two decimal places, (i.e., 0.1234 should be entered as 12.34%.))

2. Compute the residual income for each division. (Loss amounts should be indicated by a minus sign. Round your answers to nearest whole dollar.)

Peak View Grand Sales revenue $ 337,000 $ 224,000 $ 302,000 Cost of goods sold 197,000 105,000 182,000 Miscellaneous operating expenses 44,000 34,000 39,000 Average invested assets 1,210,000 910,000 1,095,000

Explanation / Answer

1) Calculate return on investment :

Calculate residual income :

Peak View Grand Sales 337000 224000 302000 Cost of goods sold 197000 105000 182000 Operating expense 44000 34000 39000 Net operating income 96000 85000 81000 Average operating assets 1210000 910000 1095000 ROI 7.93% 9.34% 7.40%

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