Reference no: EM13902934
ROI computations comparing net and gross book value. The following information relates to the operating performance of two divisions of World Electronics, Inc., for last year.
U.S. Division Australian Division
Operating Profit $ 3,000,000 $ 4,000,000
Total Assets (at gross acquisition cost) 20,000,000 50,000,000
Total Assets (net of accumulated depreciation) 15,000,000 15,000,000
a. Compute the return on investment (ROI) of each division, using total assets at gross book value as the investment base.
b. Compute the ROI of each division, using total assets net of accumulated depreciation (net book value) as the investment base.
c. Which of the two measures do you think gives the better indication of operating per- formance? Explain your reasoning.
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