Solution-Compute the residual income for each division

Compute the residual income for each division

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Reference no: EM132873571

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: EM132873571

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Compute the residual income for each division

Reference no: EM132873571

Reference no: EM132873571

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