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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 Divisional investment Divisional profit Variable cost 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 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.

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 Divisional investment Divisional profit Variable cost 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 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.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Please answer questions No. 1 to 6 of Jay Arr Company.

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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?
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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