Return on Investment and Residual Income The Emergency Medical Services Company

Question

Return on Investment and Residual Income
The Emergency Medical Services Company has two divisions that operate independently of one another. The financial data for the year 20X5 reported the following results:

The company's desired rate of return is 10%. Income is defined as operating income.

a. What are the respective return-on-investment ratios for the North and South divisions?

Round ROI to the nearest whole percentage.

b. What are the respective residual incomes of the North and South divisions?

c. Which division has the better return on investment and which division has the better residual income figure?

Return on investment

AnswerNorthSouth

Residual income

AnswerNorthSouth

North South Sales $3,720,000 $3,220,000 Operating income 930,000 730,000 Taxable income 785,000 510,000 Investment 6,000,000 5,000,000 CLICK HERE TO REVMEW LEARNING OBJECTIVES QUESTION 2 Not complete Points out of 3.00 Return on Investment and Residual Income F Flag quession The Emergency Medical Services Company has two divisions that operate independently of one another. The financial data for the year 20X5 reported the following results: North South Sales $3,720,000 $3,220,000 Operating income 30,000 730,000 85,000 510,000 6,000,000 5,000,000 Taxable incame Investment The company's desired rate of return is 10%. Income 15 defined as operating income a. What are the respective retum-on-investment ratios for the North and South divisions? Round ROl to the nearest whole percentage ROI North South 0% b. What are the respective residual incomes of the North and South divisions? Residual Income North South c. Which division has the better return on investment and which division has the better residual income figure? Return on investment Residual income Check

Explanation / Answer

Answers

Working

North

South

A

Operating Income

$       9,30,000.00

$      7,30,000.00

B

Investment

$     60,00,000.00

$   50,00,000.00

C=A/B

ROI

15.5%

14.6%

Working

North

South

A

Investment

$     60,00,000.00

$   50,00,000.00

B = A x 10%

Return at 10%

$       6,00,000.00

$      5,00,000.00

C

Operating Income

$       9,30,000.00

$      7,30,000.00

D=C – B

Residual Income

$       3,30,000.00

$      2,30,000.00

Return on Investment

North, because it has more ROI

Residual Income

North, because it has more residual income

Working

North

South

A

Operating Income

$       9,30,000.00

$      7,30,000.00

B

Investment

$     60,00,000.00

$   50,00,000.00

C=A/B

ROI

15.5%

14.6%

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