Hi, I really need help with this problem- 23-3B. Thank you! PR 23-3B Divisional

Question

Hi,

I really need help with this problem-
23-3B.

Thank you!

PR 23-3B Divisional income statements and rate of return on investment analysis oBJ. E.F. Lynch Company is a diversified investment company with three operating divisions organized as invcstment centers. Condensed data taken from thc records of the threc divisions for the year encled June 30, 2016, are as follows: 2. Mutual Fund Division, ROL 22.4% Mutual Fund Brokerago 2980800 3,360,000Divlslon 3,091,200 1,120,000 $4560,000 Fee revenue Operating expenses Invested assets 3,739,20 3,800,000 5,175,000 The managmtof F.F. ynch Company is evaluating each clivision as a basis for plan- ning a futuure expansion of operations. Instructions 1. Prepare condsed divisional income statements for the three divisions, assuming that there were no scrvice department charges investment turnover, and rate of return on investment for each division which of the divisions would you recommend for expansion, based on parts (1) and 2. Using the DuPontomula for rate of return on investment, compute the profit margin, 3.If available funds permit the expansion of operations of only one division, (2) Explain.

Explanation / Answer

Based on the the above analysis Electronic Brokerage Division has highest Asset Turnover Ratio and Rate of Return. Hence if funds are available, these funds can be invested in Electronic Brokerage Division.

Mutual Fund Electronic Investment Division Brokerage Banking   Division Division Fee Revenue        41,40,000 33,60,000     45,60,000 Operating Expenses        29,80,800 30,91,200     37,39,200 Net Margin        11,59,200     2,68,800       8,20,800 Invested Assets        51,75,000 11,20,000     38,00,000 Asset Turnover Ratio                   0.80             3.00                1.20 Rate of Return 22% 24% 22%

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