Question: Altoona Technologies, Inc. (ATI) has three divisions. ATI has a desired rate of return of 12.5 pe...
Altoona Technologies, Inc. (ATI) has three divisions. ATI has a desired rate of return of 12.5 percent. The operating assets and income for each division are as follows:
Divisions Operating Assets Operating Income Printer $ 540,000 $ 96,000 Copier 810,000 90,000 Fax 360,000 54,000 Total $ 1,710,000 $ 240,000
ATI headquarters has $120,000 of additional cash to invest in one of its divisions. The division managers have identified investment opportunities that are expected to yield the following ROIs:
Expected ROIs for Divisions Additional Investments Printer 14.0 % Copier 13.0 % Fax 12.0 %
Required
a-1. Calculate the ROI for each division.
a-2. Which division manager is currently producing the highest ROI?
b. Based on ROI, which division manager would be most eager to accept the $120,000 of investment funds?
c. Based on ROI, which division manager would be least likely to accept the $120,000 of investment funds?
d. Which division offers the best investment opportunity for ATI?
g. Calculate the residual income:
(1) At the corporate (headquarters) level before the additional investment.
(2) At the division level before the additional investment.
(3) At the investment level.
(4) At the division level after the additional investment.
ReqG1
residual income
ReqG2 to G4:
residual income (loss) (2) Printer Division Copier Division Fax Division (3) Printer Division Copier Division Fax Division (4) Printer Division Copier Division Fax division
Question: Altoona Technologies, Inc. (ATI) has three divisions. ATI has a desired rate of return of 12.5 pe...
Altoona Technologies, Inc. (ATI) has three divisions. ATI has a desired rate of return of 12.5 percent. The operating assets and income for each division are as follows:
| Divisions | Operating Assets | Operating Income | |||||
| Printer | $ | 540,000 | $ | 96,000 | |||
| Copier | 810,000 | 90,000 | |||||
| Fax | 360,000 | 54,000 | |||||
| Total | $ | 1,710,000 | $ | 240,000 | |||
ATI headquarters has $120,000 of additional cash to invest in one of its divisions. The division managers have identified investment opportunities that are expected to yield the following ROIs:
| Expected ROIs for | ||
| Divisions | Additional Investments | |
| Printer | 14.0 | % |
| Copier | 13.0 | % |
| Fax | 12.0 | % |
Required
a-1. Calculate the ROI for each division.
a-2. Which division manager is currently producing the highest ROI?
b. Based on ROI, which division manager would be most eager to accept the $120,000 of investment funds?
c. Based on ROI, which division manager would be least likely to accept the $120,000 of investment funds?
d. Which division offers the best investment opportunity for ATI?
g. Calculate the residual income:
(1) At the corporate (headquarters) level before the additional investment.
(2) At the division level before the additional investment.
(3) At the investment level.
(4) At the division level after the additional investment.
ReqG1
| residual income |
ReqG2 to G4:
| residual income (loss) | ||
| (2) | Printer Division | |
| Copier Division | ||
| Fax Division | ||
| (3) | Printer Division | |
| Copier Division | ||
| Fax Division | ||
| (4) | Printer Division | |
| Copier Division | ||
| Fax division |
Related questions
Perez Technologies, Inc. has three divisions. Perez has a desired rate of return of 12.5 percent. The operating assets and income for each division are as follows:
| Divisions | Operating Assets | Operating Income | |||||
| Printer | $ | 650,000 | $ | 106,600 | |||
| Copier | 920,000 | 100,280 | |||||
| Fax | 470,000 | 64,860 | |||||
| Total | $ | 2,040,000 | $ | 271,740 | |||
Perez headquarters has $131,000 of additional cash to invest in one of its divisions. The division managers have identified investment opportunities that are expected to yield the following ROIs:
| Expected ROIs for | ||
| Divisions | Additional Investments | |
| Printer | 14.0 | % |
| Copier | 13.0 | % |
| Fax | 12.0 | % |
Required
a-1. Calculate the ROI for each division.
a-2. Which division manager is currently producing the highest ROI?
b. Based on ROI, which division manager would be most eager to accept the $131,000 of investment funds?
c. Based on ROI, which division manager would be least likely to accept the $131,000 of investment funds?
d. Which division offers the best investment opportunity for Perez?
g. Calculate the residual income:
(1) At the corporate (headquarters) level before the additional investment.
(2) At the division level before the additional investment.
(3) At the investment level.
(4) At the division level after the additional investment.
| âI know headquarters wants us to add that new product line,â said Dell Havasi, manager of Billings Companyâs Office Products Division. âBut I want to see the numbers before I make any move. Our divisionâs return on investment (ROI) has led the company for three years, and I donât want any letdown.â |
| Billings Company is a decentralized wholesaler with five autonomous divisions. The divisions are evaluated on the basis of ROI, with year-end bonuses given to the divisional managers who have the highest ROIs. Operating results for the companyâs Office Products Division for the most recent year are given below:
The company had an overall return on investment (ROI) of 16.00% last year (considering all divisions). The Office Products Division has an opportunity to add a new product line that would require an additional investment in operating assets of $2,501,500. The cost and revenue characteristics of the new product line per year would be: Sales$ 9,500,000 Variable expenses65% of sales Fixed expenses$ 2,574,100
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| âI know headquarters wants us to add that new product line,â said Dell Havasi, manager of Billings Companyâs Office Products Division. âBut I want to see the numbers before I make any move. Our divisionâs return on investment (ROI) has led the company for three years, and I donât want any letdown.â |
| Billings Company is a decentralized wholesaler with five autonomous divisions. The divisions are evaluated on the basis of ROI, with year-end bonuses given to the divisional managers who have the highest ROIs. Operating results for the companyâs Office Products Division for the most recent year are given below: |
| Sales | $ | 21,100,000 |
| Variable expenses | 13,350,400 | |
| Contribution margin | 7,749,600 | |
| Fixed expenses | 5,935,000 | |
| Net operating income | $ | 1,814,600 |
| Divisional operating assets | $ | 4,220,000 |
| The company had an overall return on investment (ROI) of 18.00% last year (considering all divisions). The Office Products Division has an opportunity to add a new product line that would require an additional investment in operating assets of $2,262,500. The cost and revenue characteristics of the new product line per year would be: |
| Sales | $ 9,050,000 |
| Variable expenses | 65% of sales |
| Fixed expenses | $ 2,534,000 |
| Required: | |
| 1. | Compute the Office Products Divisionâs ROI for the most recent year; also compute the ROI as it would appear if the new product line is added. (Do not round intermediate calculations. Round your Turnover answers to 2 decimal places. Round your Margin and ROI percentage answers to 2 decimal places (i.e., 0.1234 should be entered as 12.34).) |
| 2. | If you were in Dell Havasiâs position, would you accept or reject the new product line? | ||||
|
| 3. | Why do you suppose headquarters is anxious for the Office Products Division to add the new product line? | ||||
|
| 4. | Suppose that the companyâs minimum required rate of return on operating assets is 16.00% and that performance is evaluated using residual income. |
| a. | Compute the Office Products Divisionâs residual income for the most recent year; also compute the residual income as it would appear if the new product line is added. (Enter your Minimum Required Rate as a whole percentage (i.e., 0.12 should be entered as 12).) |
