The Following Information Is Available About the Status and Operations

question 133

Essay

The following information is available about the status and operations for Division A of Triplex Company, which has a minimum required ROI of 10%. Answer each item independently of the others.
$$\begin{array} { l r } & \text { Division A } \\\text { Divisional investment } & \$ 100,006 \\\text { Divisional profit } & \$ 17,500 \\\text { Divisional sales } & \$ 200,000\end{array}$$
Required:
a. Compute the residual income for Division A.
b. Division A could increase its profit by $4,000 by increasing its investment by $30,000. Compute its new residual income.
c. Division A could increase its profit margin ratio by one percentage point (for example: from 12% to 13%), without increasing total sales or investment. Compute its new residual income.
d. Division A could reduce its investment so that its asset turnover increased by one time, while holding total sales and profit constant. Compute its new residual income.

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