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Division A at Smith Co. produces four different products. There are no interrelationships between the products,...

Division A at Smith Co. produces four different products. There are no interrelationships between the products, and the assets used to manufacture each product could be sold for their net book values. Data for the coming year are as follows:

Product A

Product B

Product C

Product D

Income

$301792

$88486

$387077

$172022

Assets

1497372

909886

2537268

1225563


If the Division A manager decides to dispose of product B by selling the assets and returning the cash proceeds on sale of the assets to the company, what would be the resulting overall divisional ROI?

Business   Accounting   
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Answer #1
BEFORE SELLING PRODUCT-B SEGMENT
Product A Product B Product C Product D Total
Net income 301792 88486 387077 172022 949377
Assets 1,497,372 909886 2537268 1225563 6170089
ROI 20.15% 9.72% 15.26% 14.04% 15.39%
(Income/Assets *100)
AFTER SELLING PRODUCT-B SEGMENT
v Product A Product C Product D Total
Net income 301792 387077 172022 860891
Assets 1,497,372 2537268 1225563 5260203
ROI 20.15% 15.26% 14.04% 16.37%
(Income/Assets *100)
hence, ROI after selling is 16.37% for Division, which has been improved.
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