(ROI, RI) A farm equipment company, with three divisions, shows the following results for 2011:
|
Tractor Division |
Mower Division |
Harvester Division |
|
|
Sales |
$ 8,000,000 |
$ 9,000,000 |
$10,000,000 |
|
Contribution margin |
2,000,000 |
2,500,000 |
3,500,000 |
|
Operating income |
1,500,000 |
1,500,000 |
2,750,000 |
|
Investment base |
12,000,000 |
14,000,000 |
16,000,000 |
The company’s desired rate of return is 15%.
- Compute each division’s ROI.
- Compute each division’s residual income.
- Rank each division by both ROI and residual income.
- Which division had the best performance in 2001? Why?