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The following information pertains to a segment of the Marian Company. Invested capital is defined as...

The following information pertains to a segment of the Marian Company. Invested capital is defined as total assets. The weighted average cost of capital is 10%. The ROI of the segment before the project is 20%. The ROI of the segment after the project is 18%. The manager is evaluated based on the segment's economic profit. A project earning a ROI of 12% should be ________.

1. accepted

2. rejected

3. compared to the company's ROI

4. compared to the company's residual income
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Homework Answers

Answer #1

1. Accepted

As there is 2% profit (i.e. 12%-10%) additional via this project. So if more capital is invested in this segment for this new project than 2% will be the Return of new capital.

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