Selected Data for Two Divisions of the Royal Company Are

question 120

Essay

Selected data for two divisions of the Royal Company are given below:
$\begin{array}{ll}&\text { South } & \text { North } \\&\text { Division } & \text { Division }\\ \text {Net sales for year }&\$ 4,000,000 & \$ 7,000,000 \\ \text {Average total assets for year }&\$ 2,000,000 & \$ 2,000,000 \\ \text { Operating income before taxes for year}&\$ 360,000 & \$ 420,000 \\ \text {Tax rate }&20 \% & 20 \% \\ \text {Average after-tax cost of capital }&10 \% & 12 \%\end{array}$
Required:
A) Compute the ROI for each division. Income is defined as operating income after taxes.
B) Based on the ROI, which division manager should receive a bonus? Bonuses are awarded if ROI equals or exceeds 15 percent.
C) Compute the residual income for each division. Invested capital is defined as total assets.
D) Based on the residual income, which division manager should receive a bonus? Bonuses are awarded if residual income is greater than $100,000.

• A) Compute the ROI for each division. Income is defined as operating income after taxes.
• B) Based on the ROI, which division manager should receive a bonus? Bonuses are awarded if ROI equals or exceeds 15 percent.
• C) Compute the residual income for each division. Invested capital is defined as total assets.
• D) Based on the residual income, which division manager should receive a bonus? Bonuses are awarded if residual income is greater than $100,000.

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Definitions:

Constituencies

Groups or bodies of voters represented by an elected official or the clientele served by an organization.

Make Concessions

The act of yielding or compromising on certain points or demands in a negotiation in order to reach an agreement.

Negotiators

People who engage in discussions with the aim of reaching an agreement or resolving differences.

Media Relations

The strategic management of interactions and communication between an organization and the media to influence public perception.