9.36 The following information is available about the status and operations of Jay Arr Company, which has a required ROI of 15% and discount rate of 12%: Division Division A B Divisional investment P 500,000 P 350,000 P 500,000 P1,500,000 P1,250,000 P 625,000 P3,500,000 P5,500,000 Divisional profit Variable cost Divisional sales 1. Division A could increase its sales by P300,000 by increasing its investment by P300,000. Compute its ROI. 2. Division A could increase its sales by P150,000 by increasing its investment by P400,000. Compute its total residual income. 3. Division B could reduce its investment so that its asset turnover increased by two, while holding total sales constant. Compute its residual income. 4. Division B could reduce its investment so that its asset turnover increased by two, while total sales increased by 10%.. Compute its ROI. 5. Division C is being considered to be added. This would require additional investment of P750,000. Upon addition of this new division, the ROI for all the company's operations shall become 40%. What is the income or loss associated with the new investment? 6. If the manager of the division is evaluated on ROI alone, will the company invest on the new project? Why? bud a
9.36 The following information is available about the status and operations of Jay Arr Company, which has a required ROI of 15% and discount rate of 12%: Division Division A B Divisional investment P 500,000 P 350,000 P 500,000 P1,500,000 P1,250,000 P 625,000 P3,500,000 P5,500,000 Divisional profit Variable cost Divisional sales 1. Division A could increase its sales by P300,000 by increasing its investment by P300,000. Compute its ROI. 2. Division A could increase its sales by P150,000 by increasing its investment by P400,000. Compute its total residual income. 3. Division B could reduce its investment so that its asset turnover increased by two, while holding total sales constant. Compute its residual income. 4. Division B could reduce its investment so that its asset turnover increased by two, while total sales increased by 10%.. Compute its ROI. 5. Division C is being considered to be added. This would require additional investment of P750,000. Upon addition of this new division, the ROI for all the company's operations shall become 40%. What is the income or loss associated with the new investment? 6. If the manager of the division is evaluated on ROI alone, will the company invest on the new project? Why? bud a
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Answer No. 4, 5, and 6.
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Transcribed Image Text:9.36
The following information is available about the status and operations of Jay Ar
Company, which has a required ROI of 15% and discount rate of 12%:
Division
Division
A
Divisional investment
P 500,000
P 350,000
P 500,000
P1,500,000
P1,250,000
P 625,000
P3,500,000
P5,500,000
Divisional profit
Variable cost
Divisional sales
1. Division A could increase its sales by P300,000 by increasing its investment by P300,000.
Compute its ROI.
2. Division A could increase its sales by P150,000 by increasing its investment by P400,000.
Compute its total residual income.
3. Division B could reduce its investment so that its asset turnover increased by two, while
holding total sales constant. Compute its residual income.
4. Division B could reduce its investment so that its asset turnover increased by two, while
total sales increased by 10%.. Compute its ROI.
5. Division C is being considered to be added. This would require additional investment of
P750,000. Upon addition of this new division, the ROI for all the company's operations
shall become 40%. What is the income or loss associated with the new investment?
6. If the manager of the division is evaluated on ROI alone, will the company invest on the
new project? Why?
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