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Compute the residual income for each division

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Reference no: EM132865316

Question - Three divisions of Jameson Co. report the following sales and operating data:

Fitness Training Spa Services Athletic Wear

Sales $700,000 $900,000 $600,000

Average operating assets $175,000 $225,000 $150,000

Operating income $35,000 $45,000 $36,000

Minimum required rate of return 11% 13% 11%

Required -

1. Compute the ROI for each division, using the formula stated in terms of margin and turnover.

2. Compute the residual income for each division.

3. Assume that each division is presented with an investment opportunity that would yield a rate of return of 21%.

a. If performance is being measured by ROI, which division or divisions will probably accept the opportunity?

b. If performance is being measured by residual income, which division or divisions will probably accept the opportunity?

Reference no: EM132865316

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