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jerico jerico
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9 years ago
Capital Investments has three divisions. Each division's required rate of return is 15%. Planned operating results for 2015 are as follows:

Division   Operating income   Investment
A   $15,000,000   $100,000,000
B   $25,000,000   $125,000,000
C   $11,000,000   $ 50,000,000

The company is planning an expansion, which will require each division to increase its investments by $25,000,000 and its income by $4,500,000.

Required:
a.   Compute the current ROI for each division.

b.   Compute the current residual income for each division.

c.   Rank the divisions according to their current ROIs and residual incomes.

d.   Determine the effects after adding the new project to each division's ROI and residual income.

e.   Assuming the managers are evaluated on either ROI or residual income, which divisions are pleased with the expansion and which ones are unhappy?
Textbook 
Cost Accounting

Cost Accounting


Edition: 14th
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cyborgcyborg
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9 years ago
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jerico Author
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#2
9 years ago
This solved my problem perfectly, thank you for your kind input.
wrote...
#3
9 years ago
Sweet, you're welcome.
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