the bishop division The Bishop Division of Kingley Corporation has a current ROI

Question

the bishop division The Bishop Division of Kingley Corporation has a current ROI of 12 percent The company target ROI is 8 percent The Bishop Division has an opportunity to invest $6,000,000 at 10 percent but is reluctant to do so because its ROI will fall to 11 25 percent The present investment base for the division is $10,000,000 Calculate the current residual income and residual income, if new Investment opportunity is adopted Based on your answers to required a should Bishop Division make the investment?

Explanation / Answer

Statement showing computations Particulars Current New Total Investment    10,000,000.00     6,000,000.00                   16,000,000.00 Return on Investment 12% 10% Return in $      1,200,000.00         600,000.00                     1,800,000.00 Desired Income @8%          800,000.00         480,000.00                     1,280,000.00 Residual income = Return - Desired Income          400,000.00         120,000.00                         520,000.00 Yes since Return is more than desired return

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