Dingo Division’s operating results include: controllable margin of $150,000, sal

Question

Dingo Division’s operating results include: controllable margin of $150,000, sales totaling $1,200,000, and average operating assets of $500,000. Dingo is considering a project with sales of $100,000, expenses of $86,000, and an investment of average operating assets of $200,000. Dingo’s required rate of return is 9%. Should Dingo accept this project?

Yes, ROI still exceeds the cost of capital. No, ROI will decrease to 7%. No, the return is less than the required rate of 9%. Yes, ROI will drop by 6.6% which is still above the minimum required rate of return.

Explanation / Answer

No, the return is less than the required rate of 9% Dear Student Thank you for using Chegg Please find below the answer and please give thumbs up   Statementshowing Computations Paticulars Existing i.e Excl prokect New Project Total i.e. incl Project Sales 1,200,000.00         100,000.00     1,300,000.00 Controllable Margin New project = 100,000 - 86,000       150,000.00           14,000.00         164,000.00 Average operating assets       500,000.00         200,000.00         700,000.00 Return on Investment = Controllable margin/ Avg operating assets 30.00% 7.00% 23.43%

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