ROI and Residual Income:Basic Computations Watkins Associated Industries is a highly diversified company with three...
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ROI and Residual Income:Basic Computations Watkins Associated Industries is a highly diversified company with three divisions: Trucking, Seafood, and Construction. Assume that the company uses return on investment and residual income as two of the evaluation tools for division managers. The company has a minimum desired rate of return on investment of 10 percent with a 30 percent tax rate. Selected operating data for three divisions of the company follow. Trucking Division Seafood Division Construction Division Sales $1,000,000 $690,000 $900,000 Operating assets 500,000 230,000 380,000 Net operating income 99,000 58,000 57,000 (a) Compute the return on investment for each division. (Round answers to three decimal places.) Trucking ROI = 0 X Seafood ROI = 0 X Construction ROI = 0 x (b) Compute the residual income for each division. Construction Seafood OX OX Residual Income Net operating income $ Minimum level Residual income $ Trucking 0 X $ OX 0 x $ OX OX 0 x $
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