Question

The income from operations and the amount of invested assets in each division of Beck Industries are as follows: Income from Operations Invested Assets Retail Division $5,400,000 $30,000,000 Commercial Division 6,250,000 25,000,000 Internet Division 1,800,000 12,000,000 a. Compute the return on investment for each division. Division Percent Retail Division % Commercial Division % Internet Division % b. Which division is the most profitable per dollar invested?

Answer 1

a. Retail division 18%

Commercial Division 25%

Internet Division 15%

b. The Commercial division is the most profitable of investments per dollar.

Step-by-step explanation:

a. The computation rate of return on investment is shown below:-

Division Percent age

Retail division 18%

Commercial Division 25%

Internet Division 15%

Working note

For division = Retail Division of Income from Operations × 100 ÷ Retail Division of Invested Assets

($5,400,000 × 100 ÷ $30,000,000)

= 18%

For commercial division = Commercial division of Income from Operations × 100 ÷ Commercial division of Invested Assets

$6,250,000 × 100 ÷ $25,000,000

= 25%

For Internet Division = Internet division of Income from Operations × 100 ÷ Internet division of Invested Assets

= $1,800,000 × 100 ÷ $12,000,000

= 15%

Therefore for computing the rate of return on investment for each division we simply applied the above formula.

b. The Commercial division is the most profitable of investments per dollar.