Grusov Company has operating assets of $16,000,000. The company’s operating inco
ID: 2528223 • Letter: G
Question
Grusov Company has operating assets of $16,000,000. The company’s operating income for the most recent accounting period was $1,920,000. The Marsh Division of Grusov controls $6,000,000 of the company’s assets and earned $840,000 of its operating income. Grusov's desired ROI is 10 percent. Grusov has $750,000 of additional funds to invest. The manager of the Marsh division believes that his division could earn $93,750 on the additional funds. The highest investment opportunity to any of the company’s other divisions is 11 percent.
Required:
Calculate the ROI of Marsh Division.(Round your answers to 2 decimal places. (i.e., .2345 should be entered as 23.45).)
Fisher total ROI if investment opportunity is accepted.
Calculate Marsh residual income from the new investment opportunity.
Grusov Company has operating assets of $16,000,000. The company’s operating income for the most recent accounting period was $1,920,000. The Marsh Division of Grusov controls $6,000,000 of the company’s assets and earned $840,000 of its operating income. Grusov's desired ROI is 10 percent. Grusov has $750,000 of additional funds to invest. The manager of the Marsh division believes that his division could earn $93,750 on the additional funds. The highest investment opportunity to any of the company’s other divisions is 11 percent.
Required:
a.Calculate the ROI of Marsh Division.(Round your answers to 2 decimal places. (i.e., .2345 should be entered as 23.45).)
(1) Before investment opportunity. (2) Only on the new investment opportunity. (3)Fisher total ROI if investment opportunity is accepted.
c-1.Calculate Marsh residual income from the new investment opportunity.
Explanation / Answer
a. ROI = Operating income/Operating assets 1 Before investment opportunity ROI = $840000/$6000000 = 14% 2 Only on the new investment opportunity ROI = $93750/$750000 = 12.50% 3 Total ROI if investment opportunity is accepted ROI = ($840000 + $93750)/($6000000 + $750000) = $933750/$6750000 = 13.83% c-1. Residual income from new investment opportunity Residual income = Operating income - Minimum acceptable operating income = $93750 - $75000 = $18750 Minimum acceptable operating income = $750000 x 10% = $75000
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