Divisional Income Statements and Return on Investment Analysis E.F. Lynch Compan
ID: 2611166 • Letter: D
Question
Divisional Income Statements and Return on Investment Analysis
E.F. Lynch Company is a diversified investment company with three operating divisions organized as investment centers. Condensed data taken from the records of the three divisions for the year ended June 30, 20Y8, are as follows:
The management of E.F. Lynch Company is evaluating each division as a basis for planning a future expansion of operations.
Required:
1. Prepare condensed divisional income statements for the three divisions, assuming that there were no service department charges.
2. Using the DuPont formula for rate of return on investment, compute the profit margin, investment turnover, and rate of return on investment for each division. Round your answers to one decimal place.
3. When faced with limited funds for expansion, management should consider an expansion of the (Mutual Fund, Investment Banking, or Electronic Brokerage) Division first.
Mutual Fund Division
Electronic Brokerage Division
Investment Banking Division Fee revenue $940,000 $990,000 $960,000 Operating expenses 456,000 415,800 351,600 Invested assets 2,200,000 2,900,000 3,900,000
Explanation / Answer
1. Prepare condensed divisional income statements for the three divisions, assuming that there were no service department charges.
2. Using the DuPont formula for rate of return on investment, compute the profit margin, investment turnover, and rate of return on investment for each division. Round your answers to one decimal place.
3. Mutual funds should consider an expansion of the division first
Mutual Fund Division Electronic Brokerage Division Investment Banking Division Fee revenue 940000 990000 960000 Operating expenses (456000) (415800) (351600) Income from operations 484000 574200 608400