the following is partial info from the charly company\'s most recent year of opp
ID: 2585046 • Letter: T
Question
the following is partial info from the charly company's most recent year of opperation it manufactures lawn mowers and categorizes operations in two divisions: Bermuda and Midiron.
Bermuda Midiron (the following are columns under either bermuda or Midiron a " ?" indicates a missing feild needed to be found) Example (Bermuda =? Midiron= 600,000 for sales Rev)
Sales Rev ? $600,000
Average invested assets $ 2,500,000 ?
NOi $160,000 $150,000
Profit margin 20% ?
Investment turnover ? 0.16
Return on investment ? ?
Residual income $40,000 $(30,000)
Q1: without making any calculations, determine whether each divisions return on investment (ROi) is above or below Charleys hurdle rate.
The Bermuda division's ROi is " ? " Charleys hurdle rate
The Midiron Divisions ROi is " ? " Charleys hurdle rate
Q2: Determine the missing amounts in the preceding table. (Round ROi percent 1 decimal place) (investment turn over round 2 decimal places)
Bermuda Midiron
Sales Rev " ? " $600,000
Averge invested Assets $2,500,000 " ? "
NOi $160,000 $150,000
Profit Margin 20% " ? % "
Investment turnover " ? " 0.16
Reutrn on investment " ? % " " ? % "
Residual income (loss) $40,000 $(30,000)
Q3: What is Charleys Hurdle Rate? ( round to 1 decimal place)
" ? % "
Q4: Suppose Charleys has the opportunity to invest additional assets to help expand the company's market share. The expansion would require an average investment of $2,800,000 and would generate $140,000 in additional income. Calculate the return on investment of the proposed expansion.
Return on investment (ROi) " ? % "
Explanation / Answer
Bermuda Midiron Sales 160000/20% 8,00,000 6,00,000 Cost of Goods Sold 800000-160000 6,40,000 4,50,000 600000-450000 NOI 1,60,000 1,50,000 Profit margin 20% 25% 150000/60000 Other Cost 160000-40000 1,20,000 1,80,000 150000-(-30000) Residual Income 40,000 -30,000 Investment Turnover 800000/2500000 0.32 0.16 Average Invested Assets 25,00,000 37,50,000 600000/.16 ROI (profit Margin*Investment Turnover) 20%*.32 6.40% 4.00% 25%*.16 Q1 Hurdle Rate Higher Than Hurdle rate Below Hurdle rate ROI of each divison 6.40% 4.00% Q2 Missing Amount as per table above Q3 Hurdle Rate Hurdle rate for perpetuity=c/r 2500000=40000/r 3750000=-30000/r r=1.6% r=-.8% Q4 Additional Investment 28,00,000 Additional Income 1,40,000 ROI=140000/2800000 5%
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