Selected Data for Two Divisions of the Ramble Company Are

question 4

Essay

Selected data for two divisions of the Ramble Company are given below:
$\begin{array}{lll}&\text { South Division }&\text { North Division }\\\text { Net sales } & \$ 4,000,000 & \$ 7,000,000 \\\text { Average total assets } & \$ 2,000,000 & \$ 2,000,000 \\\text { Net operating income after taxes } & \$ 360,000 & \$ 420,000 \\\text { Average plant assets } & \$ 950,000 & \$ 800,000 \\\text { Average cost of capital } & 10 \% & 12 \%\end{array}$
Each division is considering a capital investment of $1,000,000.The annual return on the capital investment is 11%.Invested capital is defined as total assets.
Required:
A) The South Division's manager is evaluated using residual income. Should South Division accept the capital investment? Why?
B) The North Division's manager is evaluated using residual income. Should North Division accept the capital investment? Why?
C) The South Division's manager is evaluated using return on investment. Should South Division accept the capital investment? Why?

• A) The South Division's manager is evaluated using residual income. Should South Division accept the capital investment? Why?
• B) The North Division's manager is evaluated using residual income. Should North Division accept the capital investment? Why?
• C) The South Division's manager is evaluated using return on investment. Should South Division accept the capital investment? Why?

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Definitions:

French and Indian Relations

Refers to the historical interactions between French colonists and Native American tribes, including alliances, trade, and conflicts, particularly during the colonial period in North America.

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The manner in which people live, encompassing their habits, attitudes, moral standards, and cultural practices.

Pueblos

refers to both the indigenous people from the Southwestern United States known for their unique adobe dwellings and to the towns established by these people.

Christianity

A monotheistic religion based on the life and teachings of Jesus Christ, its central figure.