Question

The Maxim Corporation reported the following operating results for its three divisions: South, West, and East.

(South Division = S, West Division = W, East Division = E)
Sales: S = $380,000, W = $1,700,000, E = $2,000,000
After-tax income: S = $20,000, W = $50,000, E = $100,000
Divisional Assets: S = $200,000, W = $625,000, E = $800,000

Which division performed the worst using the return on investment (ROI) measure?
A. South.
B. West.
C. East.
D. All three divisions have the same ROI.

Answer 1

To determine which division performed the worst using the ROI measure, calculate the ROI for each division and compare. The West Division has the lowest ROI.

Step-by-step explanation:

To determine which division performed the worst using the return on investment (ROI) measure, we need to calculate the ROI for each division. ROI is calculated by dividing the after-tax income by the divisional assets and multiplying by 100.

The ROI for the South Division is ($20,000 / $200,000) * 100 = 10%.

The ROI for the West Division is ($50,000 / $625,000) * 100 = 8%.

The ROI for the East Division is ($100,000 / $800,000) * 100 = 12.5%.

Therefore, the division that performed the worst using the ROI measure is the West Division, with an ROI of 8%.