If photos look blurry you just have to zoom in a little. 5 Selected sales and op

Question

If photos look blurry you just have to zoom in a little. 5 Selected sales and operating data for three divisions of different structural engineering firms are given as follows Division A1?1. Division Bil il Division 412,640,000 35,800,000 ?20,640,000 Sales Average operating assets Net operating income Minimum required rate of return 3,160,000 606,720 10 , 00 7, 160,000 608,600 10.508 5, 160,000 577,920 11.20 . 4 nts eBook oRequired: Prin 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 11% rate of return. a. If performance is being measured by ROI, 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? Complete this question by entering your answers in the tabs below. Req 1 Req 2 Reg 3A Req 3B Compute the return on investment (ROI) for each division using the formula stated iterms of margin and turnover (Do not round intermediate calculations. Round your answers to 2 decimal places.) Margin Turnover ROI Division A Division E Division C

Explanation / Answer

1 Return on Investment = Margin*Turnover Net Operating Income/Sales * Sales/Average operating assets Division A 606720/12640000 * 12640000/3160000 19.20% Division B 608600/35800000*35800000/7160000 8.50% Division C 577920/20640000*20640000/5160000 11.20% 2 Division A Division B Division C Average Operating Income 3160000 7160000 5160000 Required Rate of return 10% 10.50% 11.20% Required Operating income 316000 751800 577920 Actual Operating income 606720 608600 577920 Required Operating income(above) 316000 751800 577920 Residual Income 290720 -143200 0 3 Based on ROI, Division A and C should be accepted since they have ROI more than 11% and Division B should be rejected Based on Residual Income Division A and C should be accepted and B should be rejected

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