Rains Nickless Ltd. of Australia has two divisions that operate in Perth and Dar

Question

Rains Nickless Ltd. of Australia has two divisions that operate in Perth and Darwin. Selected data on the two divisions follow: Compute the return on investment (ROI) for each division (Do not round Intermediate calculations Round your final answers to 2 decimal places.) Assume that the company evaluates performance using residual income and that the minimum required rate of return for any division is 12% Compute the residual income for each division. Is the Darwin Division's greater residual income an indication that it is better managed?

Explanation / Answer

Return on investment = Net operating income / Average operating assets

3)      

3) Yes

Particulars Perth Darwin Sales 8400000 22470000 Net Operating income 562800 1662780 Average operating assets 3000000 10700000 Return on investment 18.76% 15.54% Return @ 12% 360000 1284000 Residual Income 202800 378780

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