Batman Abstract Company Has Three Divisions That Operate Autonomously The Company's Desired Rate of Return Is 20

question 110

Essay

Batman Abstract Company has three divisions that operate autonomously.Their results for 2015 are as follows:
$$\begin{array} { | l | r | r | r | } \hline & { \text { Riddler } } & { \text { Joker } } & { \text { Penguin } } \\\hline \text { Sales } & \$ 5,000,000 & \$ 7,000,000 & \$ 10,000,000 \\\hline \text { Contribution margin } & 1,440,000 & 1,700,000 & 3,500,000 \\\hline \text { Pperating income } & 1,000,000 & 1,750,000 & 2,520,000 \\\hline \text { Investment base } & 9,000,000 & 10,000,000 & 14,000,000 \\\hline\end{array}$$ The company's desired rate of return is 20%.
Required:
a.Compute each division's ROI.
b.Compute each division's residual income.
c.Rank each division by both ROI and residual income.
d.Which division had the best performance in 2015? Why?

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Definitions:

Bond Premium

The excess of a bond's market price over its principal amount or nominal value.

Straight-line Method

A strategy for computing depreciation or amortization through evenly apportioning the cost of an asset across its expected useful duration.

Semiannual Interest

Interest that is calculated and paid twice a year, commonly found in bonds and loans.

Present Value

A financial concept that represents the current value of a future amount of money or stream of cash flows given a specified rate of return.