Selected sales and operating data for three divisions of three different compani

Question

Selected sales and operating data for three divisions of three different companies are given below: Division A Division B, Division C, Sales for the Division Income for the Division Capital Invested in the Division Company Hurdle Rate Company 1 Company 2Company 3 $80,000 $1,800 $20,000 12% $60,000 $3,000 $15,000 15% $100,000 $9,000 $50,000 18% Each division is presented with an investment opportunity that would yield a rate of return of 16% If performance is being measured by Return on Investment, which division or divisions will probably accept the opportunity? O A. Division A, Company 1, Division B, Company 2, and Division C, Company 3 O B. Division A, Company 1 only O C. Division A, Company 1 and Division C, Company 3 O D. Division B, Company 2 and Division C, Company 3 O E. Division C, Company 3 only

Explanation / Answer

Answer is C. Division A Company 1,Division C Company 3

Explanation of answer:-

Hurdle Rate- Hurdle rate is a minimum rate that an investor want to earn on investment.

According to question Division A of company 1 and Division C of company 3 has return of investment is higher than hurdle rate, therefore these divisions will probably accept the opportunity.

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