Orange Corp. has two divisions: Fruit and Flower. The following information for the past year is available for each division:
| | Fruit Division | Flower Division |
|-----------------------|----------------|-----------------|
| Sales revenue | $ 840,000 | $ 1,260,000 |
| Cost of goods sold and operating expenses | 630,000 | 945,000 |
| Net operating income | $ 210,000 | $ 315,000 |
| Average invested assets | $ 2,100,000 | $ 1,750,000 |
Orange has established a hurdle rate of 6 percent.
Required:
1-a. Compute each division's return on investment (ROI) and residual income for last year.
1-b. Determine which manager seems to be performing better.
2. Suppose Orange is investing in new technology that will increase each division's operating income by $126,000. The total investment required is $1,800,000, which will be split evenly between the two divisions. Calculate the ROI and residual income for each division after the investment is made.
3. Determine whether both managers will support the investment.
Complete this question by entering your answers in the tabs below.
Compute each division's return on investment (ROI) and residual income for last year. (Enter your ROI answers as a percentage rounded to two decimal places, (i.e., 0.1234 should be entered as 12.34%.))
| | Fruit Division | Flower Division |
|-----------------------|----------------|-----------------|
| ROI | | |
| Residual Income (Loss) | | |
