QUESTIONS Not complete Points out of 6.60 Flag question ROI and Residual Income:

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QUESTIONS Not complete Points out of 6.60 Flag question ROI and Residual Income: Basic Computations Watkins Associated Industries is a highly diversified company with three divisions: Trucking, Seafood, and Construction. Assume that the company uses return on investment and residual income as two of the evaluation tools for division managers. The company has a minimum desired rate of return on investment of 15 percent with a 30 percent tax rate. Selected operating data for three divisions of the company follow Sales Operating assets Net operating income Trucking Division s1,250,000 650,000 146,250 Seafood Division Construction Division $950,000 400,000 79,600 $ 800,000 300,000 52,800 (a) Compute the return on investment for each division. (Round answers to three decimal places.) Trucking ROI = Seafood ROI = Construction ROI (b) Compute the residual income for each division Residual income Trucking Seafood Construction Net operating income$ Minimum level Residual income

Explanation / Answer

SOLUTION

(A)

(B)

Trucking division Seafood division Construction Division Net Operating Income (A) 146,250 52,800 79,600 Operating assets (B) 650,000 300,000 400,000 ROI (A/B) 0.225 0.176 0.199

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