Question - Ferris Ltd. of Australia has two divisions, one in Perth and one in Darwin. Selected date on the two divisions follow:
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|
Division
|
|
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Perth
|
Darwin
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|
Sales
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$9,510,000
|
$23,400,000
|
|
Operating income
|
665,700
|
2,106,000
|
|
Average operating assets
|
3,170,000
|
11,700,000
|
Required:
1. Compute the ROI for each division.
2. Assume that the company evaluates performance using residual income and that the minimum required rate of return for any division is 16%. Compute the residual income for each division.
3. Is the Darwin Division's greater residual income en indication that it is better managed?