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# Computing divisional income and RI and ROI

Eastern Merchants shows the following information for its two divisions for year one.

Eastern Western
Revenue....................................1,200,000 3,800,000
Cost of sales................................769,500 1,900,000
Other general and admin. ...........158,500 1,100,000

The results for year two have been posted:

Eastern Western
Revenue................................ 1,200,000 2,800,000
Cost of sales......................... 769,500 1,400,000
Other general and admin. ............158,500 1,100,000

REQUIRED:
Compute divisional operating income for the two divisions for year two. Ignore taxes. How well have these divisions performed?

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TL division of Giant Bank has assets of \$14.4 billion. During the past year the division had profits of \$1.8 billion. Giant bank has a cost of capital of 8 percent. Ignore taxes.
REQUIRED:
1. Compute the divisional ROI.
2. Compute the divisional RI.

#### Solution Preview

1. Operating income is income before interest and taxes. We are given the revenue and all costs except interest and taxes.
Operating Income = Revenue - cost of sales - allocated corporate overhead - other general and admin
Eastern, Operating Income = ...

#### Solution Summary

Computing divisional income, RI and ROI is examined.

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