Two Divisions of Interspatial Company Report Summary Results as Follows

question 6

Essay

Two divisions of Interspatial Company report summary results as follows:
Pluto Mars
Sales $800,000 $900,000
Operating income $100,000 $150,000
Average investment $200,000 $400,000
a)Calculate the return on investment for each division and then break it down into the return on sales and investment turnover.
b)What is the residual income for each division if the required rate of return is 20%?

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Definitions:

Productive Capacity

The maximum output that an economy can produce without increasing inflation, given its current level of resources.

Equity

Fairness or justice in the way people are treated or the distribution of resources, often distinguished from equality by focusing on needs and outcomes.

Efficiency

The optimal use of resources to achieve the best possible outcome or output without wasting resources.

Market Economy

An economic system in which supply and demand determine the production of goods and services.