Question

Return on Investment and Investment Decisions

Leslie Blandings, division manager of Audiotech Inc., was debating the merits of a new product—a weather radio that would put out a warning if the county in which the listener lived were under a severe thunderstorm or tornado alert.

The budgeted income of the division was $775,000 with operating assets of $5,425,000. The proposed investment would add income of $640,000 and would require an additional investment in equipment of $4,000,000. The minimum required return on investment for the company is 14%.

**1.** Compute the ROI of the following (round to
the nearest whole percent):

a. The division if the radio project is not undertaken. | % |

b. The radio project alone. | % |

c. The division if the radio project is undertaken. | % |

**2.** Compute the residual income of the
following:

a. The division if the radio project is not undertaken. | $ |

b. The radio project alone. | $ |

c. The division if the radio project is undertaken. | $ |

Answer #1

Statement showing computations | |||

Particulars | a. The division if the radio project is not undertaken. | b. The radio project alone. | c. The division if the radio project is undertaken. |

Budgeted Income (BI) | 775,000.00 | 640,000.00 | 1,415,000.00 |

Operating Assets | 5,425,000.00 | 4,000,000.00 | 9,425,000.00 |

1) Return on Investment = Income/Operating Assets | 14.29% | 16.00% | 15.01% |

Required Income @14% of Operating assets | 759,500.00 | 560,000.00 | 1319,500.00 |

2) Residual income = BI- Reqd Income | 15,500.00 | 80,000.00 | 95,500.00 |

Return on Investment and Investment Decisions Leslie Blandings,
division manager of Audiotech Inc., was debating the merits of a
new product—a weather radio that would put out a warning if the
county in which the listener lived were under a severe thunderstorm
or tornado alert. The budgeted income of the division was $725,000
with operating assets of $3,925,000. The proposed investment would
add income of $640,000 and would require an additional investment
in equipment of $4,000,000. The minimum required return...

ROI and Residual Income:
Impact of a New Investment
The Mustang Division of Detroit Motors had an operating income of
$700,000 and net assets of $4,000,000. Detroit Motors has a target
rate of return of 16 percent.
(a) Compute the return on investment. (Round your answer to three
decimal places.)
(b) Compute the residual income.
(c) The Mustang Division has an opportunity to increase operating
income by $200,000 with an $950,000 investment in assets.
1. Compute the Mustang Division's return...

ROI and Residual Income:
Impact of a New Investment
The Mustang Division of Detroit Motors had an operating income of
$700,000 and net assets of $4,000,000. Detroit Motors has a target
rate of return of 16 percent.
(a) Compute the return on investment. (Round your answer to three
decimal places.)
Answer
(b) Compute the residual income.
$Answer
(c) The Mustang Division has an opportunity to increase operating
income by $200,000 with an $950,000 investment in assets.
1. Compute the Mustang...

Please answers : Round your answer to three decimal places
ROI and Residual Income:
Impact of a New Investment
The Mustang Division of Detroit Motors had an operating income
of $700,000 and net assets of $4,000,000. Detroit Motors has a
target rate of return of 16 percent.
(a) Compute the return on investment. (Round your answer to three
decimal places.)
Answer
(b) Compute the residual income.
$Answer
(c) The Mustang Division has an opportunity to increase operating
income by $200,000...

Return on Investment, Margin, Turnover
Data follow for the Construction Division of D. Jack Inc.:
Year 1
Year 2
Sales
$148,500,000
$162,250,000
Operating income
8,910,000
8,112,500
Average operating assets
337,500,000
405,625,000
(Note: If required, round your answers to two decimal
places.)
Required:
1. Compute the margin (as a percent) and
turnover ratios for each year.
Year 1
Year 2
Margin
%
%
Turnover
2. Compute the ROI (as a percent) for the
Construction Division for each year.
ROI year 1...

Return on Investment, Margin, Turnover
Data follow for the Construction Division of D. Jack Inc.:
Year 1 Sales $141,075,000
Operating income 9,801,000
Average operating assets 354,375,000
Year 2 Sales $178,475,000
Operation Income 8,923,750
Average operating assets 365,062,500
If required, round your answers to two decimal places.
Required:
1. Compute the margin (as a percent) and turnover ratios for
each year:
Year 1
Margin: %
Turnover:
Year 2
Margin: %
Turnover:
Compute the ROI (as a percent) for the Construction Division...

Exercise 10-12 Evaluating New Investments Using Return on
Investment (ROI) and Residual Income [LO10-1, LO10-2]
Selected sales and operating data for three divisions of
different structural engineering firms are given as follows:
Division A
Division B
Division C
Sales
$
5,700,000
$
9,700,000
$
8,800,000
Average operating assets
$
1,140,000
$
4,850,000
$
1,760,000
Net operating income
$
273,600
$
853,600
$
180,400
Minimum required rate of return
17.00
%
17.60
%
14.00
%
Required:
1. Compute the return on...

I know headquarters wants us to add that new product line,” said
Dell Havasi, manager of Billings Company’s Office Products
Division. “But I want to see the numbers before I make any move.
Our division’s return on investment (ROI) has led the company for
three years, and I don’t want any letdown.”
Billings Company is a decentralized wholesaler with five
autonomous divisions. The divisions are evaluated on the basis of
ROI, with year-end bonuses given to the divisional managers who...

Exercise 11-12 Evaluating New Investments Using Return on
Investment (ROI) and Residual Income [LO11-1, LO11-2]
Selected sales and
operating data for three divisions of different structural
engineering firms are given as follows:
Division A
Division B
Division C
Sales
$
16,100,000
$
28,880,000
$
20,880,000
Average
operating assets
$
3,220,000
$
7,220,000
$
5,220,000
Net operating
income
$
644,000
$
519,840
$
626,400
Minimum required
rate of return
8.00
%
8.50
%
12.00
%
Required:
1. Compute the return
on...

Return on Investment and Economic Value Added Calculations with
Varying Assumptions
Knitpix Products is a division of Parker Textiles Inc. During
the coming year, it expects to earn income of $320,000 based on
sales of $3.45 million. Without any new investments, the division
will have average operating assets of $3 million. The division is
considering a capital investment project—adding knitting machines
to produce gaiters—that requires an additional investment of
$600,000 and increases net income by $57,500 (sales would increase
by...

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