Luke company has three divisions, Peak, View and Grand. The company has a hurdle

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Luke company has three divisions, Peak, View and Grand. The company has a hurdle rate of 5.26%. Selected operating data for the three divisions at follows.......

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Search 2 Most Visited my utryvedu ALGEBRA Login Search everything or Question 10 (of 10) Save & Exit Submit Time remaining: 045.07 10 Luke Company has three divisions: Peak, View, and Grand. The company has a hurdle rate of 5.26 percent. Selected operating data for the three divisions follow Sales revenue Cost of goods sold Miscellaneous operating expenses Average invested assets $ 331,000 $ 234,000 $ 318,000 203,000 117,00083.00o 35,000 1.240,000930,0001195,000 36,000 31,000 Required 1. Compute the return on investment for each division. (Enter your ROl answers as a percentage rounded to two decimal places, (i.e., 0.1234 should be entered as 12.34%) 109. Chapter 10 test banko... Study Notes

Explanation / Answer

Answer:

1

Peak

View

Grand

Return on investment

7.42%

9.25%

8.37%

2

Peak

View

Grand

Residual Income

26776

37082

37143

Working notes for the above answer is as under

W.N.1

Peak

View

Grand

Sales

331000

234000

318000

Less:

Cost of goods sold (b)

203000

117000

183000

Gross profit C=A-B

128000

117000

135000

Less: Miscellaneous Operating expenses (D)

36000

31000

35000

Operating profit (E=C-D)

92000

86000

100000

Divided By

Average invested assets (F)

1,240,000

930,000

1,195,000

Return on investment (G=E/F)

7.42%

9.25%

8.37%

W.N.2

Peak

View

Grand

Average invested assets (A)

1,240,000

930,000

1,195,000

Multiplied by hurled rate (B)

5.26%

5.26%

5.26%

Desired income (C=A*B)

65224

48918

62857

Operating profit (D)

92000

86000

100000

Residual Income (E=D-C)

26776

37082

37143

Peak

View

Grand

Return on investment

7.42%

9.25%

8.37%

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