KQuestlon 2 (of 2) value: 30.00 points Three divisions of Jameson Co. report the

Question

KQuestlon 2 (of 2) value: 30.00 points Three divisions of Jameson Co. report the following sales and operating data Athletic TrainingServices Wear Sales Average operating assetsS 136,000 $ 186,000 Operating income Minimum required rate of return S 680,000 930,000$650,000 130,000 S 27,200 37,200$ 32,500 10% 12% 10% Required: 1. Compute the ROI for each division, using the formula stated in terms of margin and turnover. Fitness training Spa services Athletic wear 2. Compute the residual income for each division itness Training Spa Services Athletic Wear Residual income 3. Assume that each division is presented with an investment opportunity that would vield a rate of retum

Explanation / Answer

Requirement 1 Fitness Training Spa Services Athletic Wear Operating Income        27,200             37,200        32,500 Average Operating Assets     1,36,000         1,86,000     1,30,000 Return On Investment 20% 20% 25% Return On Investment =Operating Income/ Average Operating Assets Requirement 2 Fitness Training Spa Services Athletic Wear Average Operating Assets     1,36,000         1,86,000     1,30,000 Minimum required rate of return 10% 12% 10% Required Operating Income        13,600             22,320        13,000 Operating Income        27,200             37,200        32,500 Residual income        13,600             14,880        19,500 Residual income = Operating income - Required Operating Income Requirement 3 a Fitness Training Spa Services Athletic Wear Return On Investment 20% 20% 25% Investment Opportunity Yield 21% 21% 21% Athletic Wear Accept Accept Not accept Requirement 3 b Fitness Training Spa Services Athletic Wear Average Operating Assets     1,36,000         1,86,000     1,30,000 Minimum required rate of return 10% 12% 10% Required Operating Income        13,600             22,320        13,000 Investment Opportunity Yield 21% 21% 21% Income Investment Opportunity        28,560             39,060        27,300 Residual income in investment opportunity        14,960             16,740        14,300 Residual income        13,600             14,880        19,500 Accept Accept Not Accept

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