The Sales, Operating Income, and Invested Assets for Each Division

question 57

Essay

The sales, operating income, and invested assets for each division of Salem Company are as follows: $$\begin{array} { l r r r } & & \text { Operating } & \text { Invested } \\ & \underline { \text { Sales } } & \underline { \text { Income } } & \underline { \text { Assets } } \\\text { Division C } & \$ 4,000,000 & \$ 410,000 & \$ 3,500,000 \\\text { Division D } & 3,500,000 & 600,000 & 4,000,000 \\\text { Division E } & 2,250,000 & 780,000 & 7,000,000\end{array}$$ ?
Management has established a minimum rate of return for invested assets of 11%.
?
(a)Determine the residual income for each division.
(b)Based on residual income, which division is the most profitable?