The Water Management Company has two operating divisions, the Service Division and the Irrigation Division. The company evaluates the performance of its divisions using the return on investment (ROI) measure. The following information pertains to the two divisions as of the end of the current year.
The average service fee was $50.00 per unit for the Service Division, while the average selling price of an irrigation system was $5,000 for the Irrigation Division. The company requires a minimum return on investment of 12%.
Required:Compute the return on investment (ROI) measure for both divisions and the company as a whole. Based on ROI alone which division had the better performance? (Round ROI measures to the nearest whole percent.)
Definitions:
Investment Center
An investment center is a business unit within an organization that has control over its revenues, expenses, and investments, and is evaluated based on its return on investment.
Franchise Fee
An initial payment made by a franchisee to a franchisor for the rights to use the franchisor's brand, system, and ongoing support.
Percent
A measure or ratio expressed as a fraction of 100.
Patent
A legal right granted by the government to an inventor, granting exclusive use of an invention for a certain period of time, preventing others from making, using, or selling the invention without permission.
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