Terra Company Has Two Divisions,the Retail Division and the Wholesale

question 113

Multiple Choice

Terra Company has two divisions,the Retail Division and the Wholesale Division.The following information was gathered for the two divisions for the current year: $\begin{array}{|l|lr|lr|}\hline & {\text { Retail Division }} & &{\text { Wholesale Division }} \\\hline \text { Operating income } & \$ & 2,500,000 & \$ & 6,000,000 \\\hline \text { Operating assets } & \$ & 16,000,000 & \$ & 36,000,000 \\\hline\end{array}$ Terra Company has set a target return on investment (ROI) of 15% for both divisions.Based on ROI,which division appears to have performed better?

• A) Retail division.
• B) Wholesale division.
• C) Both divisions have the same results.
• D) The answer cannot be determined using the information provided.

---

Definitions:

Capital Budgeting

The process of planning and evaluating expenditures on assets whose returns are expected to extend beyond one year.

Earnings

The amount of profit that a company produces during a specific period.

Signaling Effect

The signaling effect is a theory in economics and finance suggesting that actions taken by a company, such as dividend announcements or share repurchases, send signals to the market about the company’s financial health and prospects.

Stock Prices

Stock prices are the current market price at which shares of a company can be bought or sold. They fluctuate based on demand and supply, company performance, and market conditions.