Carl's Connection manufactures add-on products for the automobile industry. The manager at Carl's Connections has just been presented the opportunity to invest in two independent projects. The first is an air conditioner for the back seats of vans. The second opportunity is turbocharger for sedans. Withoud either investment, the company currently expects average assets for the coming year to be $28.9 million and expects operating income to be $4.335 million. Below is the expected cost for each investment and their expected operating income. It can be assumed that the outlay is the value of the asset. Air Conditioner TurboCharger Outlay $750,000.00 $600,000.00 Operating Income $90,000.00 $82,080.00 Suppose the company sets a minimum required rate of return equal to 14%. Calculate the residual income for each of the following alternatives 1. Company RI, if only the air conditioner investment is made 2. Company RI, if only the turbocharger investment is made 3. Company RI, if both investments are made 4. Company RI, if neither investment is made
Carl's Connection manufactures add-on products for the automobile industry. The manager at Carl's Connections has just been presented the opportunity to invest in two independent projects. The first is an air conditioner for the back seats of vans. The second opportunity is turbocharger for sedans. Withoud either investment, the company currently expects average assets for the coming year to be $28.9 million and expects operating income to be $4.335 million. Below is the expected cost for each investment and their expected operating income. It can be assumed that the outlay is the value of the asset.
Air Conditioner TurboCharger
Outlay $750,000.00 $600,000.00
Operating Income $90,000.00 $82,080.00
Suppose the company sets a minimum required
1. Company RI, if only the air conditioner investment is made
2. Company RI, if only the turbocharger investment is made
3. Company RI, if both investments are made
4. Company RI, if neither investment is made
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