Answer:
Divisions A B C
1) ROI 23% 7.50% 10.40%
2) Residual income(loss) $428400 -$141200 $0
3)a ROI reject accept reject
3b) Residual income Accept Reject Accept
Explanation:
Divisions A B C
Sales $15,300,000 $35,300,000 $20,240,000
Net operating income $703,800 $529,500 $526,240
operating Assets $3,060,000 $7,060,000 $5,060,000
required rate of return 9.00% 9.50% 10.40
ROI = Net operating income / average operating assets
Residual income(loss) = controllable margin- required return* average operating expenses
let controllable margin = net operating income
sales are primary incomes more like gross without any expenses deducted.
3a ) If performance is measured by ROI then the new rate of the investment must be higher than the ROI for a project to be accepted
3b) Residual income: for a project to be accepted it must have a positive effect on it and or should generate a positive residual income.
