Kings of Neon, Inc. is a company that manufactures neon signs, billboards and other related advertising media for various commercial enterprises. Consider the following data, which relate to the two divisions of Kings of Neon.
Division 1 | Division 2 | |
Total assets | $50,000,000 | $33,000,000 |
Investment in Fluorescent Inc.* | 5,000,000 | 3,566,000 |
Operating income | 13,000,000 | 5,385,000 |
Minimum required rate of return | 9% | 11% |
*Investment in Fluorescent Inc. represents an investment in the common shares of another company. This amount is included in total assets.
Required:
a. Compute and compare return on investment and residual income for the two divisions, and provide your answer to the boxes given below by including only numeric values without any formatting. Round to the 4th decimal places for interim numbers, and round the the 2nd decimal places for final results.
Division 1 | Division 2 | |
Return on Investment | Blank 1. Calculate the answer by read surrounding text. % | Blank 2. Calculate the answer by read surrounding text. % |
Residual Income | $ Blank 3. Calculate the answer by read surrounding text. | $ Blank 4. Calculate the answer by read surrounding text. |
b. In the past year, which division has created the most wealth for Kings of Neon shareholders? Enter the number of the division in the box provided below.
Division | Blank 5. Calculate the answer by read surrounding text. |
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