Orange Corp. has two divisions: Fruit and Flower. The followinginformation for the past year is available for eachdivision:
| Fruit Division | | Flower Division |
| Sales revenue | | $660,000 | | | $990,000 |
| Cost of goods sold and operating expenses | | 495,000 | | | 742,500 |
| Net operating income | | $165,000 | | | $247,500 |
| Average invested assets | | $2,062,500 | | | $1,375,000 |
|
Orange has established a hurdle rate of 5 percent.
Required:
1. Compute each division’s return on investment(ROI) and residual income for last year.
2. Suppose Orange is investing in new technologythat will increase each division’s operating income by $120,000.The total investment required is $1,500,000, which will be splitevenly between the two divisions. Calculate the ROI and residualincome for each division after the investment is made. Enter ROI asa percentage rounded to 2 decimal places.
