Selected sales and operating data for three divisions of different structural en

Question

Selected sales and operating data for three divisions of different structural engineering firms are given as follows Division A $ 12,920,000 S3,230,000 $ 516,800 Division B $ 28,920,000 $ 26,150,000 $ 7,230,000 S 5,230,000 $ 462,720 $ 758, 350 Division C Sales Average operating assets Net operating income Minimum required rate of return 7.00% 7.50% 14 . 50% Required 1. Compute the return on investment (ROI) for each division using the formula stated in terms of margin and turnover 2. Compute the residual income (loss) for each division. 3, Assume that each division is presented with an investment opportunity that would yield a 8% rate of return a. If performance is being measured by ROl, which division or divisions will probably accept or reject the opportunity? b. If performance is being measured by residual income, which division or divisions will probably accept or reject the opportunity? Complete this question by entering your answers in the tabs below Req 1 Req 2 Req 3A Req 3B Compute the return on investment (ROI) for each division using the formula stated in terms of margin and turnover. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Margin Turnover ROI Division A Division B Division C

Explanation / Answer

Req 1: Margin% = Net operating income / Net sales*100 Turnover= Net sales/ Average operating assets ROI= Margin%*Turnover Sales Net operating income Average Op. Assets Margin % Turnover ROI Division A 12,920,000 516,800 3,230,000 4 4 16 Division B 28,920,000 462,720 7,230,000 1.6 4 6.4 Division C 26,150,000 758,350 5,230,000 2.9 5 14.5 Req 2: Sales Net operating income Average Op. Assets Required rate Required return Residual Income Division A 12,920,000 516,800 3,230,000 7% 226100 290,700 Division B 28,920,000 462,720 7,230,000 7.50% 542250 -79,530 Division C 26,150,000 758,350 5,230,000 14.50% 758350 0 Req 3A: Now, Required rate of reurn on 8% ROI Decision Division A 16% Accept Division B 6.40% Reject Division C 14.50% Accept Req 3B: Residual at Required ROI of 8% Sales Net operating income Average Op. Assets Required rate Required return Residual Income Division A 12,920,000 516,800 3,230,000 8% 258400 258,400 Division B 28,920,000 462,720 7,230,000 8.00% 578400 -115,680 Division C 26,150,000 758,350 5,230,000 8.00% 418400 339,950 Residual Income Decision Division A 258,400 Accept Division B -115,680 Reject Division C 339,950 Accept

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.