Presented below is selected information for three regional divisions of Medina C
ID: 2477091 • Letter: P
Question
Presented below is selected information for three regional divisions of Medina Company. Compute the return on investment for each division. (Round ROI to 0 decimal places, e.g. 15.) North Division % West Division % South Division % Compute the residual income for each division. (Round final answers to 0 decimal places, e.g. 1, 255.) North Division $ West Division $ South Division $ Assume that each division has an investment opportunity that would provide a rate of return of 16%. If ROI is used to measure performance, which division or divisions will probably make the additional investment? If residual income is used to measure performance, which division or divisions will probably make the additional investment?Explanation / Answer
ROI may be calculated as
ROI = Controllabel MArgin/ Avg. Operating assets
Residual Income
RI = Controllable MArgin-(Average Operating assets* Min.Required rate of return)
3.
Accept
North 140300/1002143 0.14 14% West 359900/1799500 0.2 20% South 210700/1505000 0.14 14%