any has the following information about its two divisions. The Sandals Comp divi

Question

any has the following information about its two divisions. The Sandals Comp divisions are investment centers. Sandals' required rate of return is 5 %. Audio Division Outdoors Division Contribution to Indirect Expenses $1,400,000 $10,000,000 Invested capital $15,000,000 $2,000,000 $12,500,000 $17,500,000 Sales An opportunity is available that yields an expected income of $1,000,000 on a investment of $10,000,000. If the divisions are evaluated based on return on investment (ROl), which will accept the opportunity? A. B. C. D. Both. Neither. Only the Outdoors Division Only the Audio division.

Explanation / Answer

C. only the Outdoor divisions

Particulars                           Audio Division                   Outdoor Division

NOPAT                                 $1400000                             $2000000

Sales                                      $10000000                           $12500000

Invested capital                                $15000000                           $17500000

Return on investment

1

Audio Division

1400000/15000000= 9.33%

2.

2000000/17500000

=11.42%

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