AP Industries has two divisions, located in Buffalo and Syracuse. Financial metrics for each division for the most recently concluded year are given in the table below:
For purposes of computing residual income, the corporation employs a 14% weighted average cost of capital.
Required:
a) Compute ROI for both the Buffalo and Syracuse divisions.
b) Compute residual income for both the Buffalo and Syracuse divisions.
c) How does the performance of the divisions compare? Discuss the shortcoming of residual income as a comparative measure of divisional performance.

Question

AP Industries has two divisions, located in Buffalo and Syracuse. Financial metrics for each division for the most recently concluded year are given in the table below:
  For purposes of computing residual income, the corporation employs a 14% weighted average cost of capital.
Required:
a) Compute ROI for both the Buffalo and Syracuse divisions.
b) Compute residual income for both the Buffalo and Syracuse divisions.
c) How does the performance of the divisions compare? Discuss the shortcoming of residual income as a comparative measure of divisional performance.

Quizplus · Accepted Answer

The Answer of AP Industries has two divisions, located in Buffalo and Syracuse. Financial metrics for each division for the most recently concluded year are given in the table below:
  For purposes of computing residual income, the corporation employs a 14% weighted average cost of capital.
Required:
a) Compute ROI for both the Buffalo and Syracuse divisions.
b) Compute residual income for both the Buffalo and Syracuse divisions.
c) How does the performance of the divisions compare? Discuss the shortcoming of residual income as a comparative measure of divisional performance.

AP Industries Has Two Divisions, Located in Buffalo and Syracuse