Please explain how to fill in the blanks of the table step by step 2. ZZZ CORP.
ID: 2536865 • Letter: P
Question
Please explain how to fill in the blanks of the table step by step
2. ZZZ CORP. has three divisions with the following performance information. ZZZ's cost of capital is 10% DivisionA Division B Division C Division sales (profit) margin Division capital turnover Division invested capital Division sales revenue Division income Required: (a) Fill in the blanks below and calculate the ROI and RI for each division. 5°% 20% thice haus $500,000 $600,00 $2,000,00 $40,000 $100,000 $150,000 (b) Which division is performing better? Explain your conclusion.Explanation / Answer
Q (a)
Q (b) Answer
Division C of XYZ CORP is performing better as both the parameters - Return on Investment and Residual Income (RI) - at 25 % and $ 90,000 respectively, are better than the other two divisions A & B.
Return on Investment measures the rate of return on the invested capital ( or Investments). It measures the effectiveness and profitability of various investments in Operating assets. The higher the ratio, better is the performance. ROI is expressed as a "%".
Residual income measures " net income that an investment earns beyond the lowest return ( or Cost of Capital) on its net operational assets ( or invested capital). Residual Income is expressed in currency terms.
Therefore, based on both ROI and Residual Income. Division C has efefctively managed its invested capital to deliver the best returns to XYZ CORP.
Divisions S.No Data Formula Used for Missing Information A B C 1 Division Sales ( Profit) Margin Division Net Profit (or Income) / Division Sales Revenue 2% 5% 20% 2 Division Capital Turnover Division Sales / Invested Capital 4 4 1.25 3 Division Invested Capital Division Sales Revenue / Division Capital Turnover 500,000 500,000 600,000 4 Division Sales Revenue Division Income / Division Sales (Profit) Margin 2,000,000 2,000,000 750,000 5 Division Income Data Given in question 40,000 100,000 150,000