Selected sales and operating data for three divisions of three different compani

Question

Selected sales and operating data for three divisions of three different companies are given below: Division ADivision B, Division C, Company1 Company 2Company 3 Sales for the Division Income for the Division Capital Invested in the Division Company Hurdle Rate $60,000 $3,000 $15,000 15% $100,000 $9,000 $50,000 18% $80,000 $1,800 $20,000 12% Each division is presented with an investment opportunity that would yield a rate of return of 16% If performance is being measured by Residual Income, which division or divisions will probably accept the opportunity? OA. Division A, Company 1, Division B, Company 2, and Division C, Company 3 O B. Division B, Company 2 and Division C, Company 3 O C. Division C, Company 3 only O D. Division A, Company 1 only O E. Division A, Company 1 and Division C, Company 3

Explanation / Answer

Calculate residual income

So answer is d) Division A,Company 1 Only

Division A Division B Division C Minimum operating income 15000*15% = 2250 50000*18% = 9000 20000*12% = 2400 Net operating income 3000 9000 1800 Residual income 750 0 -600

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