Sales 8,000,000

NOI 800,000
Average operating 3,200,000
1
ROI 25%
2
Margin 20%
Turnover 6.25
ROI 125%
3
Margin 11%
Turnover 2.5
ROI 26%
 Perth Darwin
Sales 9,000,000 20,000,000
NOI 630,000 1,800,000
Average operating 3,000,000 10,000,000
1
Margin 7% 9%
Turnover 3 2
ROI 21% 18%
2
Minimum required rate of return 16% 16%
RI 150,000 200,000
3

No, the Darwin Division is simply larger than the Perth Division and for this reason alone onewou
would have a greater amount of residual income. In fact, based on thedata above, the Darwin Divi
appear to be as well managed as the Perth Division. The Darwin Division has an 18% return on inv
compared to 21% for the PerthDivision.Residual income can not be used to compare the performan
different sizes.Larger divisions will almost always look better.
his reason alone onewould expect that it
a above, the Darwin Division does not
has an 18% return on investment as
o compare the performance of divisions of
1 ROI
Present 32%
New products line alone 21%

2 Reject

3 Adding the new line would increase the company's overall ROI

4 RI
a Present 892,500
New products line alone 180,000

b Accept
 A B C
Sales 4,000,000 1,500,000 6,000,000
NOI 560,000 210,000 210,000
Average operating 2,000,000 3,000,000 3,000,000
Margin 14% 14% 3.5%
Turnover 2 0.50 2
ROI 28% 7% 7%