Required information Use the following information for the Exercises below. [The
ID: 2511883 • Letter: R
Question
Required information Use the following information for the Exercises below. [The following information applies to the questions displayed below] iler of consumer goods, provides the following information on two of its departments (each considered an investment center). Aver Investment Center Electronics Sporting goods Sales IncomeInvested Assets $41,529,800 $3,114,008 18,888,00 2,261,008 $17,300,808 13,380,888 Exercise 9-10 Computing return on investment and residual income; investing decision LO A1 1. Compute return on investment for each department. Using return on investment which department is most efficient at using assets to generate returns for the company? 2. Assume a target income level of 11% of average invested assets. Compute residual income for each department which department generated the most residual income for the company? 3, Assume the Electronics department is presented with new investment opportunity that will yield a 14% return on invenment Should the new investment opportunity be accepted? Complete this question by entering your answers in the tabs below.Explanation / Answer
Solution:
Part 1 – Return on Investment
Choose Numerator
/
Choose Denominator
=
Return on Investment
Income
/
Average Invested Assets
=
Return on Investment
Electronics
3114000
/
17300000
=
18.00%
Sporting Goods
2261000
/
13300000
=
17.00%
Which department is most efficient at using assets to generate returns for the company -- Electronics
Part 2 ---
Investment Center
Electronics
Sporting Goods
Net Income
$3,114,000
$2,261,000
Target Net Income
(Avg Invested Assets x 11%)
$1,903,000
(17,300,000*11%)
$1,463,000
(13,300,000*11%)
Residual Income
(Net Income - Target Income)
$1,211,000
$798,000
Which department is most efficient at using assets to generate returns for the company -- Electronics
Part 3 –
Yes the new investment opportunity should be accepted.
Hope the above calculations, working and explanations are clear to you and help you in understanding the concept of question.... please rate my answer...in case any doubt, post a comment and I will try to resolve the doubt ASAP…thank you
Choose Numerator
/
Choose Denominator
=
Return on Investment
Income
/
Average Invested Assets
=
Return on Investment
Electronics
3114000
/
17300000
=
18.00%
Sporting Goods
2261000
/
13300000
=
17.00%
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