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 DivisionB Division C Sales Average operating assets Net operating income Minimum required rate of retum Division A $ 12, 360, 000 $3, 090, 000 $494, 400 25, 450, 000 5, 090, 000 636, 250 12.50% $28, 360, 000 $7, 090, 000 453, 760 $ 7.00% 7.50% Required 1. Compute the return on investment (ROI) for each division using the formula stated in terms of margin and turnover 2. Compute the residual income (loss) for each division. 3, Assume that each division is presented with an investment opportunity that would yield a 8% rate of return. a. If performance is being measured by ROl, which division or divisions will probably accept or reject the opportunity? b. If performance is being measured by residual income, which division or divisions will probably accept or reject the opportunity? Complete this question by entering your answers in the tabs below. Req 1 Req 2 Req 3A Req 3B Compute the return on investment (ROI) for each division using the formula stated in terms of margin and turnover. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Margin Turnover ROI Division A Division E DivisionC

Explanation / Answer

Margin = Net operating income/Sales Turnover = Sales/Average operating assets ROI = Margin*Turnover Margin Turnover ROI Division A 4.00% 4.00 16.00% Division B 1.60% 4.00 6.40% Division C 2.50% 5.00 12.50% 2 Division A Division B Division C Net operating income 494400 453760 636250 Minimum required return 216300 531750 636250 Residual income 278100 -77990 0 3 Division A Division B Division C a Reject Accept Reject Division A Division B Division C b Accept Accept Reject

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