Wescott Company has three divisions: A, B, and C. The company has a hurdle rate of 8 percent. Selected operating data for the three divisions are as follows:
Division A Division B Division C
Sales revenue $1,255,000 $920,000 $898,000
Cost of goods sold $776,000 $675,000 $652,000
Miscellaneous operating expenses $64,000 $52,000 $53,100
Interest and taxes $48,000 $41,000 $41,500
Average invested assets $8,300,000 $1,930,000 $3,215,000
Wescott is considering an expansion project in the upcoming year that will cost $5 million and return $450,000 per year. The project would be implemented by only one of the three divisions.
Required:
1. Compute the ROl for each division.
2. Compute the residual income for each division.
