Homework SourseDivisional Income Statements and Return on Investment Analys
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 |
Solution
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) | |
| 484000 | 574200 | 608400 | |
