Problem 1. Riscalla Company has two divisions, A and B. The following information is available:
Division A
Revenue: $300,000
Income: $30,000
Invested capital: $100,000
Cost of capital: 20%
Division B
Revenue: $350,000
Income: $90,000
Invested capital: $150,000
Cost of capital: 15%
Calculate the residual income for each Division.
Problem 2. Division E had an ROI last year of 15%. The division's minimum required rate of return is 10%. If the division's invested capital last year was $450,000, what was the division's residual income last year?
Problem 3. The following data is available for the North Division of Blueride Products, Inc., and the single product it makes:
Unit selling price: $20
Variable cost per unit: $12
Annual fixed costs $280,000
Invested capital: $1,500,000
a. How many units must South sell each year to have an ROI of 16%?
b. If South wants a residual income of $50,000, and the minimum required rate of return is 10%, what is the capital turnover?
Problem 4. Sales and invested capital for Division 1 and Division 2 are given below:
Division 1
Sales: $20,000
Invested Capital: $8,000
Division 2
Sales: $50,000
Invested Capital: $10,000
What is the return on sales that each division will have to earn in order to generate a return on investment of 20%?