Homework SoursePlease answer the following question Please make sure its ro
Please answer the following question, Please make sure its rounded to the Round answers to three decimal places.)
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 10 percent with a 30 percent tax rate. Selected operating data for three divisions of the company follow.
(a) Compute the return on investment for each division. (Round answers to three decimal places.)
Trucking ROI = Answer
Seafood ROI = Answer
Construction ROI = Answer
(b) Compute the residual income for each division.
| Trucking Division | Seafood Division | Construction Division | |
|---|---|---|---|
| Sales | $1,000,000 | $690,000 | $900,000 |
| Operating assets | 500,000 | 230,000 | 380,000 |
| Net operating income | 99,000 | 58,000 | 57,000 |
Solution
answer for a)
ROI:(net operating income/operating assets)×100
Trucking ROI:($99000/$500000)×100
=19.8%
Seafood ROI:($58000/$230000)×100
=25.22%
Construction ROI:($57000/$380000)×100
=15%
Answer for b)
71428.57
($500000×10%×100/70)
32857.14
($230000×10%×100/70)
54285.71
($380000×10%×100/70)
| Residual income | Trucking($) | Seafood($) | construction($) |
| Net operating income | 99000 | 58000 | 57000 |
| Minimum level | 71428.57 ($500000×10%×100/70) | 32857.14 ($230000×10%×100/70) | 54285.71 ($380000×10%×100/70) |
| Residual income | 27571.43 | 25142.86 | 2814.29 |
