Question

Divisional Income Statements and Return on Investment Analysis

E.F. Lynch Company is a diversified investment company with three operating divisions organized as investment centers. Condensed data taken from the records of the three divisions for the year ended June 30, 20Y8, are as follows:

	Mutual Fund Division		Electronic Brokerage Division		Investment Banking Division
Fee revenue	$1,670,000		$1,710,000		$1,670,000
Operating expenses	816,000		630,000		1,180,400
Invested assets	6,100,000		5,000,000		3,400,000

The management of E.F. Lynch Company is evaluating each division as a basis for planning a future expansion of operations.

Required:

1. Prepare condensed divisional income statements for the three divisions, assuming that there were no support department allocations.

E.F. Lynch Company
Divisional Income Statements
For the Year Ended June 30, 20Y8
	Mutual Fund Division	Electronic Brokerage Division	Investment Banking Division
Fee revenue	$	$	$
Operating expenses
Operating income	$	$	$

2. Using the DuPont formula for return on investment, compute the profit margin, investment turnover, and return on investment for each division. Round your answers to one decimal place.

Division	Profit Margin	Investment Turnover	ROI
Mutual Fund Division	%		%
Electronic Brokerage Division	%		%
Investment Banking Division	%		%

3. When faced with limited funds for expansion, management should consider an expansion of the   Division first.

Answer 1