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

question 103

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: 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?
$$\begin{array} { | l | l | l r | } \hline & { \text { Retail Division } } & { \text { Wholesale Division } } \\\hline \text { Operating income } & \$ 2,500,000 & \$ 6,000,000 \\\hline \text { Operating assets } & \$ 16,000,000 & \$ 36,000,000 \\\hline\end{array}$$

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

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Definitions:

Discounted Note

A promissory note whose face value has been reduced to reflect the effect of interest that it will earn.

GAAP

Generally Accepted Accounting Principles, which are a set of accounting standards and practices used to prepare financial statements.

Financial Instruments

Contracts that give rise to both a financial asset of one entity and a financial liability or equity instrument of another entity.