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11_InClassActivities_PerformanceMeasurementAtShaggyCorpAndComingUpShort

11_InClassActivities_PerformanceMeasurementAtShaggyCorpAndComingUpShort

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ACC 333 (Farrell) Class 11 Fall 2011 Page 1 of 3 In-Class Activity and Questions – Performance Measurement at ShaggyCorp Formulas Note: These are the ROI and residual income formulas we’ll use today and for the remainder of the semester, and are the ones you need to know for this class. Return on Investment (ROI) an individual asset’s incremental ROI: operating income (i.e., return) generated by use of the asset cost of the asset a division’s ROI: total operating income (i.e., returns) generated by the division total operating assets used by the division a division’s ROI after purchase or sale of an asset: division’s operating income before purchase (sale) of asset + (-) operating income from purchase (sale) of asset division’s operating assets before purchase (sale) of asset + (-) cost of asset being purchased (sold) Residual Income a division’s residual income: operating income - cost of capital where cost of capital = (minimum required rate of return x amount of assets) so, residual income = operating income - (minimum required rate of return x amount of assets) a division’s estimated residual income after purchase (sale) of an asset:
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