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ROI and Residual Income:Basic Computations Watkins Associated Industries is a highly diversified company with three divisions:...
ROI and Residual Income:Basic Computations
Watkins Associated Industries is a highly diversified company with three divisions: Trucking, Seafood, and Construction. Assume that the company uses return on investment and residual income as two of the evaluation tools for division managers. The company has a minimum desired rate of return on investment of 10 percent with a 30 percent tax rate. Selected operating data for three divisions of the company follow.
| Trucking Division | Seafood Division | Construction Division | ||||
| Sales | $1,000,000 |
|
$900,000 | |||
| Operating assets | 500,000 | 230,000 | 380,000 | |||
|
99,000 | 58,000 | 57,000 |
(a) Compute the return on investment for each division. (Round
answers to three decimal places.)
Trucking ROI = Answer
Seafood ROI = Answer
Construction ROI = Answer
(b) Compute the residual income for each division.
Net operating income .
Minimum level
| Residual income |
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