Exercise 10-12 (Algo) Evaluating New Investments Using Return on Investment (ROI) and Residua Income [LO10-1, LO10-2] Selected sales and operating data for three divisions of different structural engineering firms are given as follows: Sales Average operating assets Net operating income Minimum required rate of return Required: Division A $ 12,630,000 Division B $ 14,735,000 Division C $ 26,312,500 $ 3,157,500 $ 631,500 $ 7,367,500 $ 589,400 $ 5,262,500 $ 842,000 14% 10% 16% 1. Compute the return on investment (ROI) for each division using the formula stated in terms of margin and turnover. 2. Compute the residual income (loss) for each division. 3. Assume that each division is presented with an investment opportunity that would yield a 15% rate of return. a. If performance is being measured by ROI, which division or divisions will probably accept or reject the opportunity? b. If performance is being measured by residual income, which division or divisions will probably accept or reject the opportu Complete this question by entering your answers in the tabs below. Req 1 Req 2 Req 3A Req 3B Compute the return on investment (ROI) for each division using the formula stated in terms of margin and turnover. (Do not round intermediate calculations. Round your answers to 1 decimal place.) Division A Division B Division C Margin Turnover % % % ROI % % %
Exercise 10-12 (Algo) Evaluating New Investments Using Return on Investment (ROI) and Residua Income [LO10-1, LO10-2] Selected sales and operating data for three divisions of different structural engineering firms are given as follows: Sales Average operating assets Net operating income Minimum required rate of return Required: Division A $ 12,630,000 Division B $ 14,735,000 Division C $ 26,312,500 $ 3,157,500 $ 631,500 $ 7,367,500 $ 589,400 $ 5,262,500 $ 842,000 14% 10% 16% 1. Compute the return on investment (ROI) for each division using the formula stated in terms of margin and turnover. 2. Compute the residual income (loss) for each division. 3. Assume that each division is presented with an investment opportunity that would yield a 15% rate of return. a. If performance is being measured by ROI, which division or divisions will probably accept or reject the opportunity? b. If performance is being measured by residual income, which division or divisions will probably accept or reject the opportu Complete this question by entering your answers in the tabs below. Req 1 Req 2 Req 3A Req 3B Compute the return on investment (ROI) for each division using the formula stated in terms of margin and turnover. (Do not round intermediate calculations. Round your answers to 1 decimal place.) Division A Division B Division C Margin Turnover % % % ROI % % %
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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![Exercise 10-12 (Algo) Evaluating New Investments Using Return on Investment (ROI) and Residual
Income [LO10-1, LO10-2]
Selected sales and operating data for three divisions of different structural engineering firms are given as follows:
Sales
Average operating assets
Net operating income
Minimum required rate of return
Required:
Division A
$ 12,630,000
Division B
$ 14,735,000
Division C
$ 26,312,500
$ 3,157,500
$ 631,500
$ 7,367,500
$ 589,400
$ 5,262,500
$ 842,000
14%
10%
16%
1. Compute the return on investment (ROI) for each division using the formula stated in terms of margin and turnover.
2. Compute the residual income (loss) for each division.
3. Assume that each division is presented with an investment opportunity that would yield a 15% rate of return.
a. If performance is being measured by ROI, which division or divisions will probably accept or reject the opportunity?
b. If performance is being measured by residual income, which division or divisions will probably accept or reject the opportunity?
Complete this question by entering your answers in the tabs below.
Req 1
Req 2
Req 3A
Req 3B
Compute the return on investment (ROI) for each division using the formula stated in terms of margin and turnover. (Do not
round intermediate calculations. Round your answers to 1 decimal place.)
Division A
Division B
Division C
Margin
Turnover
%
%
%
ROI
%
%
%](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F16de7208-315f-45fd-b557-2ea524fc5bc0%2F58b28685-8fbb-4f67-ba64-84fa6c48175c%2Fr96rs6_processed.png&w=3840&q=75)
Transcribed Image Text:Exercise 10-12 (Algo) Evaluating New Investments Using Return on Investment (ROI) and Residual
Income [LO10-1, LO10-2]
Selected sales and operating data for three divisions of different structural engineering firms are given as follows:
Sales
Average operating assets
Net operating income
Minimum required rate of return
Required:
Division A
$ 12,630,000
Division B
$ 14,735,000
Division C
$ 26,312,500
$ 3,157,500
$ 631,500
$ 7,367,500
$ 589,400
$ 5,262,500
$ 842,000
14%
10%
16%
1. Compute the return on investment (ROI) for each division using the formula stated in terms of margin and turnover.
2. Compute the residual income (loss) for each division.
3. Assume that each division is presented with an investment opportunity that would yield a 15% rate of return.
a. If performance is being measured by ROI, which division or divisions will probably accept or reject the opportunity?
b. If performance is being measured by residual income, which division or divisions will probably accept or reject the opportunity?
Complete this question by entering your answers in the tabs below.
Req 1
Req 2
Req 3A
Req 3B
Compute the return on investment (ROI) for each division using the formula stated in terms of margin and turnover. (Do not
round intermediate calculations. Round your answers to 1 decimal place.)
Division A
Division B
Division C
Margin
Turnover
%
%
%
ROI
%
%
%
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Step 1: Introduce to Margin, turnover and ROI
VIEWStep 2: Working for margin of each division
VIEWStep 3: Working for turnover of each division
VIEWStep 4: Working for ROI of each division
VIEWStep 5: Working for residual income of each division
VIEWStep 6: Working for decision for required #3
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