D10-20 Sales revenue $8,640,000 Operating income $768,000 Average assets $4,368,

Question

D10-20 Sales revenue $8,640,000 Operating income $768,000 Average assets $4,368,000 25%. at last week's advisory board meeting. Isabelle told the board that the had up to s50,000 to invest in new facies at the camp and asked them to r Today the board's president presented Isabelle with the fallowing list of three potential investments to improve the camp fadlities. Playground $ 3,850 27,500 Pool $ 5,016 $2,544 41,800 15,900 Average total assets preceding the number e.?.-45 or Darentheses eq. (45), Round Economic Value Added answer to 2 decinal places eg 15,25 & all other answers to 0 decimal places, e.g. 15 or 15%.) Pool Playground Return on Investment

Explanation / Answer

Play ground Swimming Pool Gym Return On Investment 14% 12% 16% Residual Income $ 0 $      -836.00 $     318.00 Economic Value added $   -137.50 $      -836.00 $     159.00 Workings: Return On Investment = Incremental operating Income/ Average total assets Play ground Swimming Pool Gym Return On Investment ($3,850/$27,500) ($5,016/$41,800) ($2,544/$15,900) 14% 12% 16% Residual Income = Incremental operating Income -(Required rate of return X Average total assets) Play ground Swimming Pool Gym Residual Income ($3,850 - (14% x $27,500) ($5,016- (14% x $41,800) ($2,544- (14% x $15,900) $ 0 $                                        -836 $                                          318 Economic Value added = Incremental operating Income after tax - (Cost of Capital X Average total assets) Play ground Swimming Pool Gym Economic Value added (75% X $3,850) - (11% x $27,500) (75% X $5,016) - (11% x $41,800) (75% X $2,544)- (11% x $15,900) $                                  -137.50 $                                  -836.00 $                                    159.00

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