Rains Nickless Ltd. of Australia has two divisions that operate in Perth and Darwin. Selected data on the two divisions follow:
| |
Division
|
| |
Perth
|
Darwin
|
|
Sales
|
$
|
7,560,000
|
$
|
26,750,000
|
|
Net operating income
|
$
|
498,960
|
$
|
1,952,750
|
|
Average operating assets
|
$
|
2,700,000
|
$
|
10,700,000
|
| |
Required:
1. Compute the return on investment (ROI) for each division. (Do not round intermediate calculations. Round your final answers to 2 decimal places.)
2. Assume that the company evaluates performance using residual income and that the minimum required rate of return for any division is 16%. Compute the residual income for each division.
|
Perth
|
Darwin
|
|
|
Residual income
|
$
|
$
|
3. Is the Darwin Division’s greater residual income an indication that it is better managed?
Yes/No