Luke Company has three divisions: Peak, View, and Grand. The company has a hurdl

Question

Luke Company has three divisions: Peak, View, and Grand. The company has a hurdle rate of 5.01 percent. Selected operating data for the three divisions follow Peak View Grand Sales revenue Cost of goods sold Miscellaneous operating expenses Average invested assets $ 343,000 $ 240,000 S 315,000 193,000 39,000 960,000 1,175,000 214,000 42,000 119,000 32,000 1,380,000 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% Peak View Grand Return on Investment 2. Compute the residual income for each division. (Loss amounts should be indicated by a minus sign. Round your answers to nearest whole dollar.) Peak View Grand Residual Income (Loss)

Explanation / Answer

Peak View Grand Sales revenue 343000 240000 315000 Less: Cost of goods sold 214000 119000 193000 Miscellaneous operating expenses 42000 32000 39000 Net operating income 87000 89000 83000 1 Return on investment = Net operating income/Average invested assets Peak View Grand Return on investment 6.30% 9.27% 7.06% 2 Residual income(loss) = Net operating income-Minimum required return Peak View Grand Residual income(loss) 17862 40904 24133

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