Selected sales and operating data for three divisions of different structural en

Question

Selected sales and operating data for three divisions of different structural engineering firms are given as follows Division A Division B $5,600,000 $9,600,000 $8,700,000 $1,120,000 $3,200,000 $1,740,000 $ 263,200 835,200 $ 169,650 Division C Sales Average operating assets Net operating income Minimum required rate of return 16.00% 26.1 0% 13.00% Required: 1. Compute the return on investment (ROl) for each division using the formula stated in terms of margin and turnover. (Round your Turnover answers to 2 decimal places. Round your Margin and RO percentage answers to 2 decimal places (ie., 0.1234 should be entered as 12.34).) Margin Turnover ROI Division A Division B Division C 0 0 0 0 0 0 0 0 0 0

Explanation / Answer

1) Margin Turnover ROI Division A 4.70% 5 23.50% Division B 8.70% 3 26.10% Division C 1.95% 5 9.75% Margin = Net operating income/sales Turnover = sales/Average operating assets ROI         = margin * turnover 2) Division A Division B Division B Average operating assets 1,120,000 3,200,000 1,740,000 Required rate of return 16% 26% 13% required operating income 179200 835200 226200 Actual operating income 263,200 835,200 169,650 Required operating income abo 179,200 835,200 226,200 residual income (loss) 84,000 0 -56,550 Residual income = net operating income -(average operating assets*min                                                                                  Required rate of return) 3a) Division A Accept Division B Accept Division C Reject 3b) Division A Accept Division B Accept Division C Reject

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