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 $1,200,000 1,800,000 1,350,000 450,000 900,000 300,000 S $5,000,000 S 2,500,000 Orange has established a hurdle rate of 5 percent. Required 1-a. Compute each division's return on investment (ROI) and residual income for last year. (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 RO 6.001 % 18.001% Residual Income (Loss) 1-b. Determine which manager seems to be performing better Flower Division Fruit Division 2. Suppose Orange is investing in new technology that will increase each division's operating income by $138,000. The total investment required is $2,400,000, 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 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)

Explanation / Answer

Answer 1 a

Answer 1 b

Flower Division.

Answer 2

Formula Fruit Division Flower Division ROI Net operating income / Average invested assets ($300,000 / $5,000,000) = 6.00 % ($450,000 / $2,500,000) = 18.00 % Residual Income (loss) Net operating income -(Average invested assets* hurdle rate) $300,000 - ($5,000,000 * 5 %) = $50,000 $450,000 -($2,500,000 * 5 %) = $325,000

Related Questions

Navigate

• Browse (All)
• Browse O
• Subjects

---

---

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