considered an investment center).Investment CenterElectronicsSporting GoodsSalesNet Income$ 10,000,000 $8,000,000750,000800,000Average InvestedAssets$3,750,0005,000,00055789(1) Compute return on investment for each department. Using return on investment, which department is most efficient atusing assets to generate returns for the company?(2) Assume a target income level of 12% of average invested assets. Compute residual income for each department. Whichdepartment generated the most residual income for the company? Residual income is clearly explained in your text, so look itup and give this a try.(3) Assume the Electronics department is presented with a new investment opportunity that will yield a 15% return on assets.Should the new investment opportunity be accepted? Explain.90

Return on InvestmentThe rate or percent of return expected or earned for the investment made is…

Answered: considered an investment center).…

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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Profit Margin, Investment Turnover, and Return on Investment The condensed income statement for the Consumer Products Division of Tri-State Industries Inc. is as follows (assuming no support department allocations): Sales $1,980,000 Cost of goods sold (891,000) Gross profit $1,089,000 Administrative expenses (594,000) Operating income $495,000 The manager of the Consumer Products Division is considering ways to increase the return on investment. a. Using the DuPont formula for return on investment, determine the profit margin, investment turnover, and return on investment of the Consumer Products Division, assuming that $3,300,000 of assets have been invested in the Consumer Products Division. Round the investment turnover to one decimal place. Profit margin fill in the blank 1 % Investment turnover fill in the blank 2 Return on investment fill in the blank 3 % b. If expenses could be reduced by $99,000 without decreasing sales, what would be the impact on…
Conner Manufacturing has two major divisions. Management wants to compare their relative performance. Information related to the two divisions is as follows: Division 1: Sales: Expenses: Asset investment: $200,000 $150,000 $1,000,000 Division 2: Sales: $45,000 Expenses: $35,000 Asset investment: $200,000 Conner currently requires investments to meet a rate of return on asset investment of 5%. Which division has the greatest level of "residual income"? Select one: O a. Division 1 O b. Division 2 O c. Both divisions have the same return on investment ratio
Profit Margin, Investment Turnover, and return on investment The condensed income statement for the Consumer Products Division of Fargo Industries Inc. is as follows (assuming no service department charges): Sales $960,000 Cost of goods sold 432,000 Gross profit $528,000 Administrative expenses 336,000 Income from operations $192,000 The manager of the Consumer Products Division is considering ways to increase the return on investment. a. Using the DuPont formula for return on investment, determine the profit margin, investment turnover, and return on investment of the Consumer Products Division, assuming that $2,400,000 of assets have been invested in the Consumer Products Division. Round the investment turnover to one decimal place. Profit margin fill in the blank 1 % Investment turnover fill in the blank 2 Rate of return on investment fill in the blank 3 % b. If expenses could be reduced by $48,000 without decreasing sales, what would be the impact on the…
rofit Margin, Investment Turnover, and Return on Investment The condensed income statement for the Consumer Products Division of Tri-State Industries Inc. is as follows (assuming no support department allocations): Sales $230,000,000 Cost of goods sold (126,500,000) Gross profit $103,500,000 Administrative expenses (64,400,000) Operating income $39,100,000 The manager of the Consumer Products Division is considering ways to increase the return on investment. a. Using the DuPont formula for return on investment, determine the profit margin, investment turnover, and return on investment of the Consumer Products Division, assuming that $143,750,000 of assets have been invested in the Consumer Products Division. If required, round your answers to one decimal place. Profit margin fill in the blank 1 % Investment turnover fill in the blank 2 Return on investment fill in the blank 3 % b. If expenses could be reduced by $3,450,000 without decreasing sales, what…
The South Division of Wiig Company reported the following data for the current year. Sales Variable costs Controllable fixed costs Average operating assets 1. 2. 3. Top management is unhappy with the investment center's return on investment (ROI). It asks the manager of the South Division to submit plans to improve ROI in the next year. The manager believes it is feasible to consider the following independent courses of action. Return on Investment $2,950,000 1,947,000 Increase sales by $300,000 with no change in the contribution margin percentage. Reduce variable costs by $155,000. Reduce average operating assets by 4%. Action 1 595,000 (a) Compute the return on investment (ROI) for the current year. (Round ROI to 2 decimal places, e.g. 1.57%.) Action 2 5,000,000 Action 3 (b) Using the ROI formula, compute the ROI under each of the proposed courses of action. (Round ROI to 2 decimal places, e.g. 1.57%.) Return on investment do % % % %
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Required information [The following information applies to the questions displayed below.] Megamart provides the following information on its two investment centers. Investment Center Electronics Income $ 3,114,000 2,261,000 Average Assets $ 17,300,000 13,300,000 Sporting goods Sales $ 41,520,000 18,088,000 1. Compute return on investment for each center. Using return on investment, which center is most efficient at using assets to generate income? 2. Assume a target income of 11% of average assets. Compute residual income for each center. Which center generated the most residual income? 3. Assume the Electronics center is presented with a new investment opportunity that will yield a 14% return on investment. Should the new investment opportunity be accepted? The target return is 11%. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Compute return on investment for each center. Using return on investment, which center is most efficient…
Knowledge Check East Division of Blue Spruce Anchors provided the following information: Contribution margin Controllable margin Average operating assets Minimum rate of return Return on investment $890,000 $395,900 $2,140,000 Compute the return on investment and the residual income. (Round return on investment answer to two decimal places (e.g., 15.25%).) Residual income 9 % %
XY Company provided you the following data: Average operating assets 120,000 Margin on sales 15% Minimum required rate of return 20% Return on investment 25% Sales 300,000 Turnover 2.50 What is the residual income? (Correct ans: 21,000) need solution
For its three investment centres, Stahl Company accumulates the following data: Centre I Centre II Centre III Sales $1,971,600 $4,003,000 $3,944,000 Controllable margin 788,640 2,346,970 3,643,800 Average operating assets 4,929,000 8,093,000 12,146,000 The centres expect the following changes in the next year: Centre I a 20% increase in sales; Centre II a $323,720 decrease in costs; and Centre III a $485,840 decrease in average operating assets.Calculate the expected return on investment for each centre. Assume Centre I has a contribution margin percentage of 80%. (Round ROI to 2 decimal places, e.g. 1.57%.) Centre I Centre II Centre III The expected return on investment % % %
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