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Compute the residual income for each division

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Reference no: EM131921997

Question - Ferris Ltd. of Australia has two divisions, one in Perth and one in Darwin. Selected date on the two divisions follow:

 

Division

 

Perth

Darwin

Sales

$9,510,000

$23,400,000

Operating income

665,700

2,106,000

Average operating assets

3,170,000

11,700,000

Required:

1. Compute the ROI for each division.

2. Assume that the company evaluates performance using residual income and that the minimum required rate of return for any division is 16%. Compute the residual income for each division.

3. Is the Darwin Division's greater residual income en indication that it is better managed?

Reference no: EM131921997

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