Question

The Research Division of Triumph Company had operating income of $9,800,000 and operating assets of $46,600,000 during the current year. The Research Division has developed a potential new product that would require $10,300,000 in operating assets and would be expected to provide $3,200,000 in operating income each year. Triumph has set a target return on investment (ROI) of 22% for each of its divisions. Assuming that the new product is put into production, calculate the division's ROI

Answer 1

Return on Investment (Division's ROI including new product
Net Operating Income (A) (Refer Note below)	$13,000,000
Average Invested/Operating Assets (B)	$56,900,000
Return on Investment (A/B*100)	22.85%
Note:
Net Operating Income without new product line	$9,800,000
Plus: Net Operating Income from new product	$3,200,000
Total Operating Income	$13,000,000
Average Operating Assets (before new product)	$46,600,000
Plus: Operating Assets related to new product line	$10,300,000
Total Average Operating Assets	$56,900,000

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