Orange Corp has two divisions: Fruit and Flower The following information for th

Question

Orange Corp has two divisions: Fruit and Flower The following information for the past year is available for each division: Fruit Division Flower Division $1,380,000 2,070.000 Sales revenue Cost of goods sold and operating expenses 1.552.500 345,000 517.500 $2.875,000 2,070,000 1,035,000 Net operating income Average invested assets Orange has established a hurdle rate of 8 percent. Required: 1-a. Compute each division's return on investment (ROI) and residual income for last year (Round your "ROl" answers to 2 decimal places. Do not round your intermediate calculations.) Fruit DivisionFlower Division ROI Residual Income 1-b. Determine which manager seems to be performing better Flower Division ) Fruit Division 2. Suppose Orange is investing in new technology that will increase each division's operating income by $144.000. The total investment required is $2, 200.000, which will be split evenly between the two divisions. Calculate the ROl and return on investment for each division after the investment is made I places. Do not round your intermediate calculations.) Fruit Division Flower Division ROI Residual Income

Explanation / Answer

Fruit Division Flower Division Sales revenue            1,380,000                                          2,070,000 COGS            1,035,000                                          1,552,500 Net operating income                345,000                                             517,500 Average invested assets            2,875,000                                          2,070,000 1-a) ROI(income/assets) 12% 25% Exp income(Assets*8%)                230,000                                             165,600 residual income(net income-exp income)                115,000                                             351,900 1-b Flower division manager with better ROI is performing better. 2) Fruit Division Flower Division Net operating income                489,000                                             661,500 Average invested assets            3,975,000                                          3,170,000 ROI 12% 21% Exp income(Assets*8%)                318,000                                             253,600 residual income(net income-exp income)                171,000                                             407,900 3) Fruit Division Accept it increases the net income Flower Division Reject   it would dec its over ROI

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