Return on Investment or asset: It establishes the relationship between the net income and the assets or capital employed. The ratio is used to measure the overall performance of an organization by looking at how efficiently an organization uses its resources. : The margin, turnover, and return on investment (ROI) for Division A, Division B, and Division C.

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Answer 1

Question

Chapter 11, Problem 14E

1.

To determine

Return on Investment or asset: It establishes the relationship between the net income and the assets or capital employed. The ratio is used to measure the overall performance of an organization by looking at how efficiently an organization uses its resources.

:

The margin, turnover, and return on investment (ROI) for Division A, Division B, and Division C.

2.

To determine

Residual income: A business performance measurement that takes into account the minimum required return on the asset employed is a residual income, which the company expects from the asset in which the investment has been made. In the other words, residual income is the number of excess earnings earned over and above the minimum required return of the capital invested.

:

The residual income of Division A, Division B, and Division C.

3 a.

To determine

Return on Investment or asset: It establishes the relationship between the net income and the assets or capital employed. The ratio is used to measure the overall performance of an organization by looking at how efficiently an organization uses its resources.

:

The division or divisions will probably accept or reject the opportunity if performance is being measured by ROI.

3 b.

To determine

Residual income: A business performance measurement that takes into account the minimum required return on the asset employed is a residual income, which the company expects from the asset in which the investment has been made. In the other words, residual income is the number of excess earnings earned over and above the minimum required return of the capital invested.

:

The division or divisions will probably accept or reject the opportunity if performance is being measured by Residual Income.

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Sales Average operating assets Net operating income Minimum required rate of return Required: 1. Compute each division's margin, turnover, and return on investment (ROI). 2. Compute each division's residual income (loss). Division A $ 12,280,000 $ 3,070,000 $ 601,720 10.00% 3. Assume each division is presented with an investment opportunity yielding a 11% rate of return. a. If performance is being measured by ROI, which division or divisions will accept the opportunity? b. If performance is being measured by residual income, which division or divisions will accept the opportunity? Complete this question by entering your answers in the tabs below. Division A Division B Division C Margin Required 1 Required 2 Required 3A Required 3B Compute each division's margin, turnover, and return on investment (ROI). Note: Do not round intermediate calculations. Round your answers to 2 decimal places. % % % Turnover ROI Division B $35,350,000 $ 7,070,000 $ 600,950 10.50% Required 1 % % do do…

QUESTION 2 Ayittey Ltd is an organization with two divisions: A and B, each with its own cost and revenue streams. Each of the two divisions is classified as Investment center. The company’s cost of capital is 9%. Historically, investment decisions have been made by calculating the return on investment (ROI). A new manager who has recently been appointed in division A has argued that using residual income (RI) to make investment decisions would result in ‘better goal congruence’ throughout the company. The data below shows the current position of the division as at the end of 31 December, 2019: Details of Projects Project A Project B Capital required GH¢ 82.8 million GH¢ 40.6 million Sales generated GH¢44.6 million GH¢ 21.8 million Net Profit margin 18% 25% The company is seeking to maximize shareholders wealth. Assuming that, Division A acquires a more efficient asset at GH¢17 million and Division B sold one of its assets with written down value of GH¢21 million, and profits are…

Contrasting Return on Investment (ROI) and Residual Income Meiji Isetan Corp. of Japan has two regional divisions with headquarters in Osaka and Yokohama. Selected data on the two divisions follow: Required: 1. For each division, compute the return on investment (ROI) in terms of margin and turnover. Where necessary, carry computations to two decimal places. 2. Assume that the company evaluates performance using residual income and that the minimum required rate of return for any division is 15%. Compute the residual income for each division. 3. Is Yokohama’s greater amount of residual income an indication that it is better managed? Explain.

Answer 2

Question

Chapter 11, Problem 14E

1.

To determine

Return on Investment or asset: It establishes the relationship between the net income and the assets or capital employed. The ratio is used to measure the overall performance of an organization by looking at how efficiently an organization uses its resources.

:

The margin, turnover, and return on investment (ROI) for Division A, Division B, and Division C.

2.

To determine

Residual income: A business performance measurement that takes into account the minimum required return on the asset employed is a residual income, which the company expects from the asset in which the investment has been made. In the other words, residual income is the number of excess earnings earned over and above the minimum required return of the capital invested.

:

The residual income of Division A, Division B, and Division C.

3 a.

To determine

Return on Investment or asset: It establishes the relationship between the net income and the assets or capital employed. The ratio is used to measure the overall performance of an organization by looking at how efficiently an organization uses its resources.

:

The division or divisions will probably accept or reject the opportunity if performance is being measured by ROI.

3 b.

To determine

Residual income: A business performance measurement that takes into account the minimum required return on the asset employed is a residual income, which the company expects from the asset in which the investment has been made. In the other words, residual income is the number of excess earnings earned over and above the minimum required return of the capital invested.

:

The division or divisions will probably accept or reject the opportunity if performance is being measured by Residual Income.

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Answer 3

Question

Chapter 11, Problem 14E

1.

To determine

Return on Investment or asset: It establishes the relationship between the net income and the assets or capital employed. The ratio is used to measure the overall performance of an organization by looking at how efficiently an organization uses its resources.

:

The margin, turnover, and return on investment (ROI) for Division A, Division B, and Division C.

2.

To determine

Residual income: A business performance measurement that takes into account the minimum required return on the asset employed is a residual income, which the company expects from the asset in which the investment has been made. In the other words, residual income is the number of excess earnings earned over and above the minimum required return of the capital invested.

:

The residual income of Division A, Division B, and Division C.

3 a.

To determine

Return on Investment or asset: It establishes the relationship between the net income and the assets or capital employed. The ratio is used to measure the overall performance of an organization by looking at how efficiently an organization uses its resources.

:

The division or divisions will probably accept or reject the opportunity if performance is being measured by ROI.

3 b.

To determine

Residual income: A business performance measurement that takes into account the minimum required return on the asset employed is a residual income, which the company expects from the asset in which the investment has been made. In the other words, residual income is the number of excess earnings earned over and above the minimum required return of the capital invested.

:

The division or divisions will probably accept or reject the opportunity if performance is being measured by Residual Income.

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Answer 4

Question

Chapter 11, Problem 14E

1.

To determine

Return on Investment or asset: It establishes the relationship between the net income and the assets or capital employed. The ratio is used to measure the overall performance of an organization by looking at how efficiently an organization uses its resources.

:

The margin, turnover, and return on investment (ROI) for Division A, Division B, and Division C.

2.

To determine

Residual income: A business performance measurement that takes into account the minimum required return on the asset employed is a residual income, which the company expects from the asset in which the investment has been made. In the other words, residual income is the number of excess earnings earned over and above the minimum required return of the capital invested.

:

The residual income of Division A, Division B, and Division C.

3 a.

To determine

Return on Investment or asset: It establishes the relationship between the net income and the assets or capital employed. The ratio is used to measure the overall performance of an organization by looking at how efficiently an organization uses its resources.

:

The division or divisions will probably accept or reject the opportunity if performance is being measured by ROI.

3 b.

To determine

Residual income: A business performance measurement that takes into account the minimum required return on the asset employed is a residual income, which the company expects from the asset in which the investment has been made. In the other words, residual income is the number of excess earnings earned over and above the minimum required return of the capital invested.

:

The division or divisions will probably accept or reject the opportunity if performance is being measured by Residual Income.

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Answer 5

Chapter 11, Problem 14E

1.

To determine

Return on Investment or asset: It establishes the relationship between the net income and the assets or capital employed. The ratio is used to measure the overall performance of an organization by looking at how efficiently an organization uses its resources.

:

The margin, turnover, and return on investment (ROI) for Division A, Division B, and Division C.

2.

To determine

Residual income: A business performance measurement that takes into account the minimum required return on the asset employed is a residual income, which the company expects from the asset in which the investment has been made. In the other words, residual income is the number of excess earnings earned over and above the minimum required return of the capital invested.

:

The residual income of Division A, Division B, and Division C.

3 a.

To determine

Return on Investment or asset: It establishes the relationship between the net income and the assets or capital employed. The ratio is used to measure the overall performance of an organization by looking at how efficiently an organization uses its resources.

:

The division or divisions will probably accept or reject the opportunity if performance is being measured by ROI.

3 b.

To determine

Residual income: A business performance measurement that takes into account the minimum required return on the asset employed is a residual income, which the company expects from the asset in which the investment has been made. In the other words, residual income is the number of excess earnings earned over and above the minimum required return of the capital invested.

:

The division or divisions will probably accept or reject the opportunity if performance is being measured by Residual Income.

Answer 6

Chapter 11, Problem 14E

1.

To determine

Return on Investment or asset: It establishes the relationship between the net income and the assets or capital employed. The ratio is used to measure the overall performance of an organization by looking at how efficiently an organization uses its resources.

:

The margin, turnover, and return on investment (ROI) for Division A, Division B, and Division C.

Answer 7

Chapter 11, Problem 14E

1.

To determine

Return on Investment or asset: It establishes the relationship between the net income and the assets or capital employed. The ratio is used to measure the overall performance of an organization by looking at how efficiently an organization uses its resources.

:

The margin, turnover, and return on investment (ROI) for Division A, Division B, and Division C.

Answer 8

2.

To determine

Residual income: A business performance measurement that takes into account the minimum required return on the asset employed is a residual income, which the company expects from the asset in which the investment has been made. In the other words, residual income is the number of excess earnings earned over and above the minimum required return of the capital invested.

:

The residual income of Division A, Division B, and Division C.

Answer 9

2.

To determine

Residual income: A business performance measurement that takes into account the minimum required return on the asset employed is a residual income, which the company expects from the asset in which the investment has been made. In the other words, residual income is the number of excess earnings earned over and above the minimum required return of the capital invested.

:

The residual income of Division A, Division B, and Division C.

Answer 10

3 a.

To determine

Return on Investment or asset: It establishes the relationship between the net income and the assets or capital employed. The ratio is used to measure the overall performance of an organization by looking at how efficiently an organization uses its resources.

:

The division or divisions will probably accept or reject the opportunity if performance is being measured by ROI.

Answer 11

3 a.

To determine

Return on Investment or asset: It establishes the relationship between the net income and the assets or capital employed. The ratio is used to measure the overall performance of an organization by looking at how efficiently an organization uses its resources.

:

The division or divisions will probably accept or reject the opportunity if performance is being measured by ROI.

Answer 12

3 b.

To determine

Residual income: A business performance measurement that takes into account the minimum required return on the asset employed is a residual income, which the company expects from the asset in which the investment has been made. In the other words, residual income is the number of excess earnings earned over and above the minimum required return of the capital invested.

:

The division or divisions will probably accept or reject the opportunity if performance is being measured by Residual Income.

Answer 13

3 b.

To determine

Residual income: A business performance measurement that takes into account the minimum required return on the asset employed is a residual income, which the company expects from the asset in which the investment has been made. In the other words, residual income is the number of excess earnings earned over and above the minimum required return of the capital invested.

:

The division or divisions will probably accept or reject the opportunity if performance is being measured by Residual Income.

Answer 14

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Answer 16

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Answer 17

Ch. 11 - Prob. 1Q Ch. 11 - Prob. 2Q Ch. 11 - Prob. 3Q Ch. 11 - Prob. 4Q Ch. 11 - Prob. 5Q Ch. 11 - Prob. 6Q Ch. 11 - Prob. 7Q Ch. 11 - Prob. 8Q Ch. 11 - Prob. 9Q Ch. 11 - Prob. 10Q

Solution Summary: The author analyzes the ratio between the net income and the assets or capital employed to determine the margin, turnover, and return on investment (ROI) for Divisions A, B and C

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