Reston has 3 divisions and has a 6.9% required rate of return and has invested c

ID: 2456558 • Letter: R

Question

Reston has 3 divisions and has a 6.9% required rate of return and has invested capital in North Division amounting to $968,000. Its North Division reported profits of $120,000 during the current year. The North Division manager is considering whether expanding the shipping docks at an estimated cost of $179,000 will enhance the division. Sales revenue from the shipping dock expansion is expected to be $345,000. The expansion is expected to increase annual income by an estimated $18,100. Calculate the North Division’s ROI if the docks are expanded. Express in proper form labeled as %, $, etc., and display with 2 decimals.

Explanation / Answer

Particulars

(Amount in $)

Nos. of Division

3.00

Required rate of return

6.90%

Investment amount in North Division

9,68,000.00

Estimated expension cost

1,79,000.00

Total estimated cost

11,47,000.00

Reported profit of North Division

1,20,000.00

Expected Revenue if expension is made

3,45,000.00

Expected Revenue before expension

3,26,900.00

% Profit before expension

36.71

Profit after expension

1,26,644

%Return on Investment

11.04