Answer:
Find below the variables missing from the question:
Selected sales and operating data for three divisions of different structural engineering firms are given as follows :
Division A Division B Division C
Sales $5,800,000 $9,800,000 $8,900,000
Average operating assets $1,450,000 $4,900,000 $2,225,000
Net operating income $284,200 $872,200 $191,350
Minimum required rate of return 18.00% 17.80% 15.00%
On the basis on return on investment Division A is preferred
On the basis of residual income Division A is also preferred
Explanation:
Return on investment is the net operating income compared to the average operating assets in the year:
Division A return on investment=$284,200/$1,450,000=19.6%
Division B return on investment=$872,200/$4,900,000=17.8%
Division C return on investment=$191,350/$2,225,000
=8.60%
Residual income=net operating income-(required rate of return*average operating assets
Division A residual income=$284,200-(18%*$1,450,000)=$23200
Division B residual income=$872,200-(17.80%*$4,900,000)=$0
Division C residual income=$191,350-(15%*$2,225,000)=$=$191,350-(15%*$2,225,000)
