Help Save&Exit; Submit Saved pter 11 HW Check my work Selected sales and operati
ID: 2413169 • Letter: H
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Help Save&Exit; Submit Saved pter 11 HW Check my work Selected sales and operating data for three divisions of different structural engineering firms are glven as follows $28,320,000 25,400,000 s 3,080,000 7,080,000 5,080,000 693,000 396,480 736,600 14.50 15,400,000 Sales Average operating assets Set operating ineome Kinimum required rate of return oints 1,00% 7.50t eBookRequired: 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. Print or divisions will probably accept or reject the opportunity? s being measured by residual income, which division or divisions will probably accept or reject the References Complete this question by entering your answers in the tabs below Req 1 Req 2 Req 3A Req 38 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.) Division A Division B Division C CRed Req 2 >Explanation / Answer
Required: 1) 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 = Net Operating Income / sales Turnover = Sales / Average operating assets ROI = Margin x Turnover Division A 4.50% 5.00 22.50% Division B 1.40% 4.00 5.60% Division C 2.90% 5.00 14.50% 2)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.) Division A Division B Division C Operating assets $3,080,000 $7,080,000 $5,080,000 Minimum required return x 7% x 7.50% x 14.50% Minimum net operating income $215,600 $531,000 $736,600 Actual net operating income $3,080,000 $7,080,000 $5,080,000 Minimum net operating income (above) $215,600 $531,000 $736,600 Residual income $2,864,400 $6,549,000 $4,343,400 3) Assume that each division is presented with an investment opportunity that would yield a rate of return of 8%. a. If performance is being measured by ROI, which division or divisions will probably accept or reject the opportunity? ROI Division A 22.50% Reject Division B 5.60% Accept Division C 14.50% Reject ROI greater than Yield rate of return should be rejected. b. If performance is being measured by residual income, which division or divisions will probably accept or reject the opportunity? Minimum required return to calculate residual income Division A 7.00% Accept Division B 7.50% Accept Division C 14.50% Reject Minimum reguired return greater than Yield rate of return should be rejected.
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