The Water Management Company has two operating divisions, the Service Division and the Irrigation Division. The company evaluates the performance of its divisions using the return on investment (ROI) measure. The following information pertains to the two divisions as of the end of the current year.
The average service fee was $50.00 per unit for the Service Division, while the average selling price of an irrigation system was $5,000 for the Irrigation Division. The company requires a minimum return on investment of 12%.Required:Compute the return on investment (ROI) measure for both divisions and the company as a whole. Based on ROI alone which division
had the better performance? (Round ROI measures to the nearest whole percent.)
What will be an ideal response?
ROI measures:
Based on ROI alone, the Service Division had better performance.
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