Question

The income from operations and the amount of invested assets in each division of Devon Industries are as follows:

	Income from Operations		Invested Assets
Sporting Goods Division	$134,900		710,000
Health Care Division	84,800		530,000
Commercial Division	37,800		270,000

a. Compute the rate of return on investment for each division. (Round to the nearest whole number.)

Division	Percent
Sporting Goods Division	%
Health Care Division	%
Commercial Division	%

b. Which division is the most profitable per dollar invested?

The income from operations and the amount of invested assets in each division of Devon Industries are as follows:

	Income from Operations		Invested Assets
Sporting Goods Division	$160,600		730,000
Health Care Division	105,000		420,000
Commercial Division	113,400		630,000

Assume that management has established a 8% minimum acceptable rate of return for invested assets.

a. Determine the residual income for each division.

	Sporting Goods Division			Health Care Division			Commercial Division
Income from operations	$160,600			$105,000			$113,400
Minimum amount of income from operations
Residual income	$			$			$

b. Which division has the most residual income?

Answer 1