Ch12exercises - Chapter 12 Review Exercises Consider the...

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Chapter 12 Review Exercises: Consider the following data for the two divisions of Peter Piper Pizza: Northwest Region Southwest Region Average Operating Assets $6,000,000 $6,000,000 Sales Revenue $18,000,000 $9,000,000 Less: Operating expenses (17,460,000) (8,100,000) Operating Income $40,000 $900,000 1. Compute the turnover, margin, return on investment, and residual income for each division. Assume a 10% hurdle rate. 2. Explain the relationship between each division’s residual income and its return on investment. 3. The manager of the Southwest Region has the opportunity to invest an additional $2,000,000 in a project expected to generate additional operating income of $220,000 per year. Calculate Southwest’s new return on investment and residual income if the manager accepts the project. 4. Would Southwest’s manager, who is evaluated, based on the region’s ROI, want to invest in the project? If the evaluation were based on the region’s residual income? Why or why not? Norshon Company recently had a computer malfunction and lost a portion of its accounting records. The company has
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