Question

The operating income and the amount of invested assets in each division of Conley Industries are as follows: Operating income Invested Assets Retail Division $180,400 $820,000 Commercial Division 81,700 430,000 Internet Division 83,200 320,000 Assume that management has established a 12% minimum acceptable return for invested assets. a. Determine the residual income for each division. Retail Division Commercial Division Internet Division Operating income $180,400 $81,700 $83,200 Minimum acceptable operating income as a percent of invested assets Residual income $ $ $ b. Which division has the most residual income?

Answer 1

Answer:

A.)

Retail division = 21.95%

Commercial division = 19%

Internet division = 26%

B.) INTERNET DIVISION HAS THE HAS THE HIGHEST RETURN ON INVESTMENT.

Explanation:

- - - - - - - - - - - - operating - - - - - - invested

Retail - - - - - - - 180,000 - - - - - - - 820,000

Commercial - - 81,700 - - - - - - - - 430,000

Internet - - - - - 83,200 - - - - - - - - 320,000

A.)

return on investment ;

Operating income ÷ invested asset

Retail division (180,000 ÷ 820,000) × 100 = 21.95%

Commercial division (81700 ÷ 430000) × 100 = 19%

Internet division (83200 ÷ 320000) × 100 = 26%

B.) Interest division has the most residual income.