ROI and Residual Income:Basic Computations Watkins Associated Industries is a hi

Question

ROI and Residual Income:Basic Computations

Watkins Associated 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.

(a) Compute the return on investment for each division. (Round answers to three decimal places.)
Trucking ROI = Answer

Seafood ROI = Answer
Construction ROI = Answer

(b) Compute the residual income for each division.

Trucking Division Seafood Division Construction Division Sales $1,200,000 $780,000 $900,000 Operating assets 600,000 260,000 330,000 Net operating income 101,000 60,000 62,000

Explanation / Answer

Answer (a)

ROI = (Net operating income / Operating assets)

Divisions Working ROI % Trucking $101,000 /$600,000 16.833 Seafood $60,000 /$260,000 23.077 % Construction $62,000 /$330,000 18.788%

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