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Determine a division residual income

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Reference no: EM131600255

Problem - You have the following information about a company's A and B divisions:

 

A

B

Sales

$720,000

d

Operating income

$54,000

e

Average Operating assets

a

$120,000

Margin

b

4%

Turnover

c

5

Return on investment (ROI)

15%

f

Question:

1. Complete missing information

a. $ ______ Average Operating assets for A Division

b. ______ % Margin for A Division

c. Turnover for A Division is ______ times.

d. $ ______ Sales for B Division

e. $ ______ Operating income for B Division

f. ______ % Return on investment for B division

2. Assume A Division has a minimum required rate of return of 12%. Based on this information and your calculation s above, determine A Division's residual income.

3. Assume that A Division has an investment opportunity that would yield a rate at return of 13%. If the division manager's performance is being measured by ROI, is she likely to accept the opportunity? Why or Why not?

Reference no: EM131600255

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