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Question - ROI and Residual Income: Basic Computations - Watkins Associated Industries is a highly diversified company with three divisions: Trucking, Seafood, and Construction. Assume that the company uses return on investment and residual income as two of the evaluation tools for division managers. The company has a minimum desired rate of return on investment of 10 percent with a 30 percent tax rate. Selected operating data for three divisions of the company follow.
Trucking Division
Seafood Division
Construction Division
Sales
$1,300,000
$870,000
$900,000
Operating assets
650,000
290,000
360,000
Net operating income
101,000
52,000
62,000
Required -
(a) Compute the return on investment for each division.
(b) Compute the residual income for each division.
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