Skyline Industries of London has two divisions that operate in London and Liverpool. Data for the two divisions is shown below:
London Liverpool
Sales $6,000,000 $15,000,000
Net Operating Income $420,000 $1,350,000
Average Operating Assets $2,000,000 $7,500,000
Required:
1. Computer the Return on Investment (ROI) for each division.
2. Assume the company evaluates performance using residual income and that the minimum required rate of return for any division is 15%. Compute the residual income for each division.
3. Based on your results from questions 1 & 2, which division do you feel is better managed? Why?