Question

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 Division's return on investment if the
project is undertaken. (Round your answer to three decimal
places.)

Answer

2. Compute the Mustang Division's residual income if the project is
undertaken.

$Answer

Answer #1

a) Return on Investment = Operating Income/Investment X 100

= 700000/4000000 X 100 = **17.50 Percent.**

b) Residual income = Actual Return - Terget Return

= 700000 - (4000000X16%)

= 700000 - 640000 = **?60,000**

**?**?c) 1) Revised Operating income =
(700000+200000) = 900000

Revised Investment = 4000000+950000 = 4950000

Therefore Return on Investment = 900000/4950000 X
100 = **18.181 Percent**.

2) Residual income = 900000 - (4950000X16%)

= 900000 - 792000 = **?1,08,000**

**Thank You.**

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...

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...

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...

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...

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...

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...

ROI and Residual Income:Basic Computations
Watkins Associated Industries is a highly diversified company
with three divisions: Trucking, Seafood, and Construction. Assume
that the company uses return on investment and residual income as
two of the evaluation tools for division managers. The company has
a minimum desired rate of return on investment of 10 percent with a
30 percent tax rate. Selected operating data for three divisions of
the company follow.
Trucking Division
Seafood Division
Construction Division
Sales
$1,000,000
$690,000
$900,000...

ROI and Residual Income:Basic Computations
Watkins Associated Industries is a highly diversified company with
three divisions: Trucking, Seafood, and Construction. Assume that
the company uses return on investment and residual income as two of
the evaluation tools for division managers. The company has a
minimum desired rate of return on investment of 10 percent with a
30 percent tax rate. Selected operating data for three divisions of
the company follow.
Trucking Division
Seafood Division
Construction Division
Sales
$1,000,000
$690,000
$900,000...

ROI and Residual Income:Basic Computations
Watkins Associated Industries is a highly diversified company with
three divisions: Trucking, Seafood, and Construction. Assume that
the company uses return on investment and residual income as two of
the evaluation tools for division managers. The company has a
minimum desired rate of return on investment of 10 percent with a
30 percent tax rate. Selected operating data for three divisions of
the company follow.
Trucking Division
Seafood Division
Construction Division
Sales
$1,200,000
$780,000
$900,000...

Eacher Wares is a division of a major corporation. The following
data are for the latest year of operations:
Eacher Wares is a division of a major corporation. The following
data are for the latest year of operations:
Sales
$14,720,000
Net operating
income
$
1,000,960
Average
operating assets
$
4,000,000
The company's
minimum required rate of return
14%
a. What is the division's margin? (Enter your answer
rounded to 2 decimal places.)
b. What is the division's turnover? (Enter your...

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