The Following Information Is Available About the Status and Operations

The following information is available about the status and operations for Division A of Abad Company, which has a minimum required ROI of 20%. Answer each item independently of the others.
$$\begin{array} { l r } & \text { Division A } \\\text { Divisional investment } & \$ 100,000 \\\text { Divisional profit } & \$ 35,000 \\\text { Divisional sales } & \$ 200,000\end{array}$$
Required:
a. Compute the ROI for Division A.
b. Compute the residual income for Division A.
c. Division A could increase its profit by $8,000 by increasing its investment by $30,000. Compute its total residual income.
d. Division A could increase its profit margin ratio by one percentage point (for example: from 12% to 13%), without increasing total sales or investment. Compute its new ROI.
e. Division A could reduce its investment so that its asset turnover increased by one time, while holding total sales and profit constant. Compute its new ROI.

Correct Answer:

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a. $35,000/$100,000 = 35%.
b. $35,000 - ...

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