Return on Investment and Investment Decisions Leslie Blandings, division manager of Audiotech Inc., wasdebating the merits of a new product—a weather radio that would putout a warning if the county in which the listener lived were undera severe thunderstorm or tornado alert. The budgeted income of the division was $725,000 with operatingassets of $3,625,000. The proposed investment would add income of$640,000 and would require an additional investment in equipment of$4,000,000. The minimum required return on investment for thecompany is 12%. 1. Compute the ROI of the following (round tothe nearest whole percent): a. The division if the radioproject is not undertaken. % b. The radio project alone. % c. The division if the radioproject is undertaken. % 2. Compute the residual income of thefollowing: a. The division if the radioproject is not undertaken. $ b. The radio project alone. $ c. The division if the radioproject is undertaken. $
Return on Investment and Investment Decisions
Leslie Blandings, division manager of Audiotech Inc., wasdebating the merits of a new product—a weather radio that would putout a warning if the county in which the listener lived were undera severe thunderstorm or tornado alert.
The budgeted income of the division was $725,000 with operatingassets of $3,625,000. The proposed investment would add income of$640,000 and would require an additional investment in equipment of$4,000,000. The minimum required return on investment for thecompany is 12%.
1. Compute the ROI of the following (round tothe nearest whole percent):
|
a. The division if the radioproject is not undertaken. |
% |
|
b. The radio project alone. |
% |
|
c. The division if the radioproject is undertaken. |
% |
2. Compute the residual income of thefollowing:
|
a. The division if the radioproject is not undertaken. |
$ |
|
b. The radio project alone. |
$ |
|
c. The division if the radioproject is undertaken. |
$ |
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