Selected sales and operating data for three divisions of different structural en
ID: 2569051 • Letter: S
Question
Selected sales and operating data for three divisions of different structural engineering firms are given as follows: Division A $16,000,000 $ 3,200,000 $752,000 Division C 36,000,000 $20,800,000 $ 7,200,000 5,200,000 $576,000 540,800 Division B Sales Average operating assets Net operating income Minimum required rate of return 9.00% 9.50% 10.40% Required: 1. Compute the return on investment (ROl) 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 10% 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?Explanation / Answer
Dear Student Thank you for using Chegg Please find below the answer and please give thumbs up Statementshowing Computations Paticulars Division A Division B Division C Sales 16,000,000.00 36,000,000.00 20,800,000.00 Average operating assets 3,200,000.00 7,200,000.00 5,200,000.00 Net operating income 752,000.00 576,000.00 540,800.00 Minimum required rate of return 9% 9.50% 10.40% 1) Margin = NOI/Sales 4.70% 1.60% 2.60% Turnover = Sales / Avg op assets 5.00 5.00 4.00 ROI = Margin * Turnover 23.50% 8.00% 10.40% 2) Net operating income 752,000.00 576,000.00 540,800.00 Minimum required income in $ = Avg op assets *min req return in % 288,000.00 684,000.00 540,800.00 Residual Income = NOI - Min req inc 464,000.00 (108,000.00) - 3a Reject Accept Reject 3b Accept Accept Reject
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