I have given you everthing that I could have . I cannot give you more info. Fran
ID: 2522175 • Letter: I
Question
I have given you everthing that I could have . I cannot give you more info.
Franklin Technologles, Inc. has three divislons. Franklin has a desired rate of return of 12.0 percent The operating assets and Income for each diMsion are as follows: Operating Incone Divisions isions Operat $ 610,808 886,888 436,808 $182,488 Printer Copier Fax Total $1,928,888 $262,988 Franklin headquarters has $127000 of additional cash to Invest In one of lts divisions. The divislon managers have Identified Investment opportunltles that are expected to yleld the following ROls: Divisions Printer Copier Fax Expected ROIs for Additional Investnents 13.5% 12.5% 11.5% Required a-1. Calculate the ROI for each divslon. a-2. Whlch division manager Is currently producing the highest ROI? b. Based on ROI, which division manager would be most eager to accept the $127000 of Investment funds? c. Based on ROI, which divislon manager would be least lkely to accept the $127,000 of Investment funds? d. Which division offers the best Investment opportunlty for Franklin? g. Calculate the resldual Income (1) At the corporate (headquarters) level before the additional Investment. 2) At the dlvMslon level before the addltional Investment. 3) At the Investment level. (4) At the division level after the additional Investment.Explanation / Answer
Calculations of return on investment (ROI)
ROI =operating income /oprating assets
a-2) aanswers
3) calculation of residual income at corporate level before additional investment of $127000
RI = oprating income at corporate - (operating assets at corporate *cost of capital/100)
= $262980- ( $1920,000*20/100)
= $262980- $384,000= ($121020)negetive
4(Calculations of residual income at various levels
=$102480($610,000*20/100)
=$-19520
=$99440(880,000*20/100)
=($76560)
=$61060-(430,000*20/100)
=($24940)
=(127000*13.5/100) - (127000*20/100)
=17145 -25400=($8255)
=(127000*12.5/100)- (127000*20/100)
= ($ 9525)
=(127000*11.5/100) -(127000*20/100)
=($10795)
=$119625-($737000*20/100)
=($27775)
=$115315 - (1007000*20/100)
=($86085)
=$75665 - ($557000*20/100)
=($35735)
Notes:
Calculation of opening income to the additional investmen
Printer= 127000*13.5/100=17145
Copier=127000*12.5/100=15875
Fax =127000*11.5/100=14605
When you are calculating the residual income after the additional investment you should add this operating income to the previous operating income
Oprating assets after additional investment
Printer $ 737000
Copier $1007000
Fax $ 557000
Operating income after additional investment
Printer $119625
Copier $115315
Fax $75665
Thank you
Division ROI printer =$102480/$610,000=0.168 or 16.8percent Copier =$99440/$880,000=0.113 or 11.3percent Fax =$61060/$430,000=0.142 or 14.2percent