Problem: Evaluating New Investments Using Return on Investment (ROI) and Residual Income
Selected sales and operating data for three divisions of different structural engineering firms are given as follows:
Task:
• Compute the return on investment (ROI) for each division using the formula stated in terms of margin and turnover.
• Compute the residual income for each division.
• Assume that each division is presented with an investment opportunity that would yield a 15% rate of return.
o If performance is being measured by ROI, which division or divisions will probably accept the opportunity? Reject? Why?
o If performance is being measured by residual income, which division or divisions will probably accept the opportunity? Reject? Why?
The response must include a reference list. Using Times New Roman 12 pnt font, double-space, one-inch margins, and APA style of writing and citations.