100) Illawarra Pizzas Corporation uses the investment centre concept for the pizza bars that it

manages in the city. Illawarra has a 30% required rate of return on investment in order for

a branch to be viable. Select operating data for three of its branches for 2014 are as follows:

Accacia Street Wattle Street Gum Street

Revenue $4 250 000 $3 375 000 $3 750 000

Operating assets 1 750 000 1 750 000 1 250 000

Net operating profit 480 000 575 000 455 000

Required:

a. Compute the return on investment for each.

b. Which branch manager is doing best based only on ROI? Why?

c. Are any of the pizza bars in danger of being closed due to lack of performance?

d. What other factors should be included when evaluating the managers?

100)

101) Provide the missing data for the following situations:

River Division Stream Division Creek Division

Sales $? $5 000 000 $?

Net operating profit $100 000 $200 000 $144 000

Operating assets $? $? $800 000

Return on investment 0.16 0.10 ?

Return on sales 0.04 ? 0.12

Investment turnover ? ? 1.5

101)

 

102) Batman Abstract Company has three divisions that operate autonomously. Their results for

2014 are as follows:

Riddler Joker Penguin

Sales $5 000 000 $7 000 000 $10 000 000

Contribution margin 1 440 000 1 700 000 3 500 000

Operating profit 1 000 000 1 750 000 2 520 000

Investment base 9 000 000 10 000 000 14 000 000

The company's desired rate of return is 20%.

Required:

a. Calculate each division's ROI.

b. Calculate each division's residual income.

c. Rank each division by both ROI and residual income.

d. Which division had the best performance in 2014? Why?

102)

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