Edward Baird Company is a diversified investment company with three operating divisions organized as investment centers. Condensed data taken from the records of the three divisions for the year ended June 30, 2012, are as follows:
Mutual Fund
Division Electronic
Brokerage
Division Investment
Banking
Division
Fee revenue $3,450,000 $2,800,000 $3,800,000
Operating expenses 2,415,000 2,632,000 2,850,000
Invested assets 5,750,000 800,000 4,750,000
The management of Edward Baird Company is evaluating each division as a basis for planning a future expansion of operations.
Instructions
1. Prepare condensed divisional income statements for the three divisions, assuming that there were no service department charges.
2. Using the DuPont formula for rate of return on investment, compute the profit margin, investment turnover, and rate of return on investment for each division.
3. If available funds permit the expansion of operations of only one division, which of the divisions would you recommend for expansion, based on parts (1) and (2)? Explain