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Safari File Edit View History Bookmarks window Help ??, 73% í U. 8 ??) Sat Jun 30 4:51 PM Alex C ezto.mneducation.com Home - alamo.edu Chapter 10 Exercises 11.11 points 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 $ 960,000 1.440,000 720,0001080.000 360,000 $ 2,000,000 S 2.000,000 S 240,000 S Orange has established a hurdle rate of 7 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 ROI Residual Income (Loss) 1-b. Determine which manager seems to be performing better Fruit Division OFlower Division 2. Suppose Orange is investing in new technology that will increase each division's operating income by $130,000. The total investment required is $2,000,000, which will be split evenly between the two divisions Calculate the ROI and return on investment for each division after the investment is made. 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 afari.dmg 0

Explanation / Answer

Req 1-a: Fruit Flower Net operating income 240000 360000 Divide: Average Operating assets 2000000 2000000 ROI 12% 18% (Net Income/ Average assets) Minimum Traget Income @7% 140000 140000 Residual income 100000 220000 (Actual inccome-Minimum Target income) Flower Division is performing better Req 2 Fruit Flower Net operating income 370000 490000 Divide: Average Operating assets 3000000 3000000 ROI 12.33% 16.33% (Net Income/ Average assets) Minimum Traget Income @7% 210000 210000 Residual income 160000 180000 (Actual inccome-Minimum Target income) Fruit Division will accept the Investment Flower division will not accept

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