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Assume a division has a minimum required rate of return of

Problem - You have the following information about a company's A and B divisions:

	A	B
Sales	$720,000	d
Operating income	$54,000	e
Average Operating assets	a	$120,000
Margin	b	4%
Turnover	c	5
Return on investment (ROI)	15%	f

Question:

1. Complete missing information

a. $ ______ Average Operating assets for A Division

b. ______ % Margin for A Division

c. Turnover for A Division is ______ times.

d. $ ______ Sales for B Division

e. $ ______ Operating income for B Division

f. ______ % Return on investment for B division

2. Assume A Division has a minimum required rate of return of 12%. Based on this information and your calculation s above, determine A Division's residual income.

3. Assume that A Division has an investment opportunity that would yield a rate at return of 13%. If the division manager's performance is being measured by ROI, is she likely to accept the opportunity? Why or Why not?

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