Reference no: EM132570466

Question - Three divisions of Jameson Co report the following sales and operating data

	Fitness Training	Spa Services	Athletic Wear
Sales	$600,000	$750,000	$400,000
Average operating assets	200,000	250,000	100,000
Operating income	30,000	37,500	24,000
Minimum required rate of return	10%	12%	10%

Required -

1. Compute the ROI for each division.

2. Compute the residual income for each division.

3. Assume that each division is presented with an investment opportunity that would yield a rate of return of 17%.

a) If performance is being measured by ROI, which division or divisions will probably accept the opportunity? Reject it? Why?

b) If performance is being measured by residual income, which division or divisions will probably accept the opportunity? Reject it? Why?