The Augment Manufacturing Company Has Three Divisions: X Division,Y Division,and

question 137

Essay

The Augment Manufacturing Company has three divisions: X Division,Y Division,and Z Division.Operating results for the three divisions for last year were as follows: $$\begin{array} { | l | r | r | r | } \hline & \operatorname { Di } \times & \operatorname { Di } Y & \operatorname { Di } Z \\\hline \text { Residual income } & \$ 98,400 & \$ 27,200 & \$ 12,000 \\\hline \text { Net operating income } & 188,600 & 115,600 & 76,000 \\\hline \begin{array} { l } \text { Average operating } \\\text { assets }\end{array} & 820,000 & 680,000 & 400,000 \\\hline \text { Sales } & 1,640,000 & 1,445,000 & 1,040,000 \\\hline \text { Profit margin } & 11.5 \% & 8.0 \% & 5.0 \% \\\hline\end{array}$$
Required:
a.What is the ROI for each of the three divisions?
b.What is the cost of capital for each of the three divisions?

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Definitions:

Exercise Price

The specified price at which an option contract can be executed, commonly used in the context of stock option plans.

Stock Market

A public market for buying and selling equity securities and derivatives, reflecting the economic status of companies and the economy.

Balanced Scorecard

An approach to strategic planning and management designed to ensure that an organization's activities are in harmony with its vision and strategy, to improve communication within and outside the organization, and to oversee the performance of the organization against its strategic targets.

Incentive Pay

Additional compensation awarded to employees for achieving specific targets or exceptional performance.