Answer:
a. Return on investment = Controllable margin / Average operating assets
North Division:
= 139,500 / 930,000
= 15%
West Division:
= 360,000 / 2,000,000
= 18%
South:
= 211,500 / 1,410,000
= 15%
b. Residual income = Controllable margin - (Average operating assets * Minimum rate of return)
North division:
= 139,500 - (930,000 * 12%)
= $27,900
West division:
= 360,000 - (2,000,000 * 14%)
= $80,000
South division:
= 211,500 - (1,410,000 * 9%)
= $84,600
Simple interest means that you only need to find the interest once and then keep adding it on every year. In this case, the interest would be 2.75% of $4000 every year, which is 110.
In 2 years, you'll have 220 because every year you gain 110 in interest.
Identification
Incorporation document
Memorandum of Incorporation