Exercise 9-9 Evaluating New Investments Using Return on Investment (ROI) and Res
ID: 2901483 • Letter: E
Question
Exercise 9-9 Evaluating New Investments Using Return on Investment (ROI) and Residual Income [LO1, LO2]
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.)
Compute the residual income for each division. (Negative amounts should be indicated by a minus sign. Leave no cells blank - be certain to enter "0" wherever required.)
Selected sales and operating data for three divisions of three different companies are given below:Explanation / Answer
Division A Division B Division C Sales [i] 5600000 9600000 8700000 Average operating assets [ii] 1120000 3200000 1740000 Net operating income [iii] 263200 835200 169650 Minimum ROR [iv] 16.00% 26.10% 13.00% 1 ROI = Net operating income / Average operating assets ROI [iii/ii] 23.50% 26.10% 9.75% 2 Minimum Income = Min ROR * Average assets Residual Income = Net Income - Minimum Income Net Income [v] 263200 835200 169650 Minimum Income [vi = iv*ii] 179200 835200 226200 Residual Income [v-iv] 84000 0 -56550
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