Reference no: EM132587014
SPF Inc. has two divisions that operate in Pasig City and Quezon City. Selected data on the two divisions follow:
Division
Pasig City Quezon City
Sales........................................................ 9,000,000 20,000.000
Net operating income .............................. 630,000 1,800,000
Average operating assets........................... 3,000,000 10,000,000
Required:
Question 1. Compute the return on investment (ROI) for each division
Question 2. Assume that the company evaluates performance by use of residual income and that the minimum required return for any division is 16%. Compute the residual income for each division.
Question 3. Is the Quezon City Division's greater residual income an indication that it is better managed. Explain.