ociated Industries is a highly diversified company with three divisions: Truckin

Question

ociated Industries is a highly diversified company with three divisions: Trucking, Seafood, and Construction. Assume that the company uses return on investment and residual income as two of the evaluation tools for division managers. The company has a minimum desired rate of return on investment of 10 percent with a 30 percent tax rate. Selected operating data for three divisions of the company follow. Trucking Division Seafood Division Construction Division Sales $ 1,200,000 $ 750,000 $ 900,000 Operating assets 600,000 250,000 350,000 Net operating income 116,000 66,000 63,000 (a) Compute the return on investment for each division. (Round answers to three decimal places.) Trucking ROI = Answer 0 Incorrect Seafood ROI = Answer 0 Incorrect Construction ROI = Answer 0 Incorrect (b) Compute the residual income for each division. Residual income Trucking Seafood Construction Net operating income $Answer 0 Incorrect $Answer 0 Incorrect $Answer 0 Incorrect Minimum level Answer 0 Incorrect Answer 0 Incorrect Answer 0 Incorrect Residual income $Answer 0 Incorrect $Answer 0 Incorrect $Answer 0 Incorrect

Explanation / Answer

Ans a Trucking Seafood Construction Sales 1200000 750000 900000 Net Operating Income A 116000 66000 63000 Income Taxes (30%) 34800 19800 18900 Net Income C 81200 46200 44100 Operating Assets E 600000 250000 350000 ROI= NetOperating Profit/Total Average or operating assets *100 C/E*100 13.53 18.48 12.60 % 81200/600000*100 46200/250000*100 44100/350000*100 Ans b Residual Income Net operating Income-(Minimum Required Return*Cost of Operating assets) C-(.1*E) 81200-(10%*600000) 46200-(250000*10%) 44100-(350000*10%) Residual Income $21200 21200 9100

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