three divisions of engineering Chap. 11

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Selected sales and operating data for three divisions of different structural engineering firms are given as follows: Division A Division B Division C Sales $6,900,000 $10,900,000 $10,000,000 Average operating assets $1,725,000 $ 5,450,000 $ 2,500,000 Net operating income $ 414,000 $ 1,090,000 $ 325,000 Minimum required rate of return 19.00% 20.00% 16.00% Required: 1. Compute the return on investment (ROI) for each division using the formula stated in terms of margin and turnover. (Round your answers to 2 decimal places.) Margin Turnover ROI Division A 6.00 % 4.00 24.00 % Division B 10.00 % 2.00 20.00 % Division C 3.25 % 4.00 13.00 % 2. Compute the residual income (loss) for each division. (Loss amounts should be indicated by a minus sign. Round your "Required rate of return" to 2 decimal places.) $ $ $ $ $ $ $ $ $ $ $ $ Division A Division B Division C Average operating assets 1,725,000 5,450,000 2,500,000 Required rate of return 19.00 % 20.00 % 16.00 % Required operating income 327,750 1,090,000 400,000 Actual operating income 414,000 1,090,000 325,000 Required operating income (above) 327,750 1,090,000 400,000 Residual income (loss) 86,250 0 (75,000) 3. Assume that each division is presented with an investment opportunity that would yield a 21% rate of return.
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