Since 1981, family-owned Southern Tool has grown into the ultimate destination for hard working do-it-yourselfers...
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Since 1981, family-owned Southern Tool has grown into the ultimate destination for hard working do-it-yourselfers and professionals. Southern Tool Corporation has two divisions: Hand Tools and Power Tools. Selected financial information for the two divisions follow: Sales Net operating income Average operating assets Division Hand Tool Power Tool $ 9,700,000 $ 27,000,000 $ 776,000 $2,700,000 $ 2,425,000 $ 13,500,000 Required: 1. For each division, compute the return on investment (ROI) in terms of margin and turnover. 2. Assume that the company evaluates performance using residual income and that the minimum required rate of return for any division is 17%. Compute the residual income for each division. 3. Is the Power Tool Division's greater amount of residual income an indication that it is better managed? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Assume that the company evaluates performance using residual income and that the minimum required rate of return for any division is 17%. Compute the residual income for each division. Hand Tool Power Tool Residual income
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