An investment center in Shellforth Corporation was asked to identify three proposals for its capital budget. Details of those proposals are as follows. Capital Budget Proposals Capital required Annual operating return $ 96,000 24,960 $ 60,000 20,400 $180,000 16, 200 Shellforth uses residual income to evaluate all capital budgeting projects. Its minimum required return is 10 percent. a-1. Assume you are the investment center manager. Calculate the residual income for each project? a-2. Which project do you prefer? b-1. Assume your investment center's current ROI is 18 percent and that the president of Shellforth is thinking about using ROI for the investment center's evaluation. Calculate the ROI for each project? b-2. Would your preferences for the projects listed change? tion bu ontoring vour answers in the tahs below.
An investment center in Shellforth Corporation was asked to identify three proposals for its capital budget. Details of those proposals are as follows. Capital Budget Proposals Capital required Annual operating return $ 96,000 24,960 $ 60,000 20,400 $180,000 16, 200 Shellforth uses residual income to evaluate all capital budgeting projects. Its minimum required return is 10 percent. a-1. Assume you are the investment center manager. Calculate the residual income for each project? a-2. Which project do you prefer? b-1. Assume your investment center's current ROI is 18 percent and that the president of Shellforth is thinking about using ROI for the investment center's evaluation. Calculate the ROI for each project? b-2. Would your preferences for the projects listed change? tion bu ontoring vour answers in the tahs below.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Performance and ROI help
Transcribed Image Text:Exercise 25.5 (Static) Performance and ROI versus Residual Income (LO25-2, LO25-3, LO25-4)
An investment center in Shellforth Corporation was asked to identify three proposals for its capital budget. Details of those proposals
are as follows.
Capital Budget Proposals
Capital required
Annual operating return
$ 96,000
24,960
$ 60,000
20,400
$180,000
16,200
ed
k
Shellforth uses residual income to evaluate all capital budgeting projects. Its minimum required return is 10 percent.
a-1. Assume you are the investment center manager. Calculate the residual income for each project?
a-2. Which project do you prefer?
b-1. Assume your investment center's current ROI is 18 percent and that the president of Shellforth is thinking about using ROI for the
investment center's evaluation. Calculate the ROI for each project?
b-2. Would your preferences for the projects listed change?
res
Complete this question by entering your answers in the tabs below.
Reg A1
Reg A2
Req B1
Reg B2
Assume your investment center's current ROI is 18 percent and that the president of Shellforth is thinking about using ROI for
the investment center's evaluation. Calculate the ROI for each project?
Project A
Project B
Project C
%
ROI
< Req A2
Req B2 >
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2 of 5
Next >
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Transcribed Image Text:An investment center in Shellforth Corporation was asked to identify three proposals for its capital budget. Details of those proposals
are as follows.
Capital Budget Proposals
Capital required
Annual operating return
$ 96,000
$ 60,000
20,400
$180,000
24,960
16,200
Shellforth uses residual income to evaluate all capital budgeting projects. Its minimum required return is 10 percent.
a-1. Assume you are the investment center manager. Calculate the residual income for each project?
a-2. Which project do you prefer?
b-1. Assume your investment center's current ROI is 18 percent and that the president of Shellforth is thinking about using ROI for the
investment center's evaluation. Calculate the ROI for each project?
b-2. Would your preferences for the projects listed change?
Complete this question by entering your answers in the tabs below.
Req A1
Req A2
Reg B1
Reg B2
Assume you are the investment center manager. Calculate the residual income for each project?
Project A
Project B
Project C
Residual income
Req A2 >
2 of 5
Next >
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