Residual Income - R esidualIncomeAnotherPerformance...

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Residual Income—Another Performance  Measurement Although most companies use ROI in evaluating their investment performance,  ROI has a significant  disadvantage . To illustrate, let's look at the Electronics Division of Pujols Manufacturing Company. It  has an ROI of 20% computed as follows.     Illustration 21A-1    ROI  formula The Electronics Division is considering producing a new product, a GPS satellite tracker (hereafter  referred to as Tracker), for its boats. To produce Tracker, operating assets will have to increase  $2,000,000. Tracker is expected to generate an additional $260,000 of controllable margin.  Illustration  21A-2  shows how Tracker will effect ROI.     Illustration 21A-2    ROI 
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comparison The investment in Tracker reduces ROI from 20% to 18%.
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This note was uploaded on 11/08/2011 for the course ACCOUNTING ac 202 taught by Professor - during the Fall '11 term at Montgomery.

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Residual Income - R esidualIncomeAnotherPerformance...

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