11_InClassActivities_PerformanceMeasurementAtShaggyCorpAndComingUpShort

11_InClassActivities_PerformanceMeasurementAtShaggyCorpAndComingUpShort

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Unformatted text preview: 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 well 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 assets incremental ROI: operating income (i.e., return) generated by use of the asset cost of the asset a divisions ROI: total operating income (i.e., returns) generated by the division total operating assets used by the division a divisions ROI after purchase or sale of an asset: divisions operating income before purchase (sale) of asset + (-) operating income from purchase (sale) of asset divisions operating assets before purchase (sale) of asset + (-) cost of asset being purchased (sold) Residual Income a divisions 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 divisions estimated residual income after purchase (sale) of an asset: divisions operating income before purchase (sale) of asset + (-) change in operating income from purchase (sale) of asset...
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11_InClassActivities_PerformanceMeasurementAtShaggyCorpAndComingUpShort

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