The Operations Division of the NDC plc is evaluating several investment projects. The ENPV method has been considered but the Board of Directors think otherwise. The following information applies to the budgeted operations of the Operations Division of the NDC plc. The Operations Division proposes an initial investment of £250,000 and has budgeted sales of 60,000units at £15 per unit. The contribution per unit is estimated at £4 per unit. The budgeted annual fixed cost is £150,000. There was no closing inventory. The minimum desired return on investment is the cost of capital of 50% a year. The variable cost is £6 per unit. REQUIRED: Calculate divisional profit and comment on the divisional expected return on investment (ROI) and residual income (RI)

The Operations Division of the NDC plc is evaluating several investment projects. The ENPV method has been considered but the Board of Directors think otherwise. The following information applies to the budgeted operations of the Operations Division of the NDC plc. The Operations Division proposes an initial investment of £250,000 and has budgeted sales of 60,000units at £15 per unit. The contribution per unit is estimated at £4 per unit. The budgeted annual fixed cost is £150,000. There was no closing inventory. The minimum desired return on investment is the cost of capital of 50% a year. The variable cost is £6 per unit. REQUIRED: Calculate divisional profit and comment on the divisional expected return on investment (ROI) and residual income (RI)

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 3P

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