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?