1. Compute the return on investment(ROI) for each division usingthe formula stated in terms of margin and turnover.
2. Compute the residual income for each division
3. Assume that each division is presented with an investmentopportunity that would yield a 15% rate of return.
a. If performance is being measured byROI, which division or divisions will probably accept theopportunity? Reject? Why?
b. If performance is being measured by residualincome, which division or divisions will probably accept theopportunity? Reject? Why?
DivisionB Division C
Sales................................................ $14,000,000 $$25,000,000
Average Operatingassets.................$7,000,000 $5,000,000
Net operatingincome........................ $560,000 $8000,000
Minimum required rate of return..........10% 16%