considered an investment center). Investment Center Electronics Sporting Goods Sales Net Income Average Invested Assets $ 10,000,000 $ 8,000,000 750,000 800,000 $3,750,000 5,000,000 (1) Compute return on investment for each department. Using return on investment, which department is most efficient at using 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. Which department generated the most residual income for the company? Residual income is clearly explained in your text, so look it up 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.
considered an investment center). Investment Center Electronics Sporting Goods Sales Net Income Average Invested Assets $ 10,000,000 $ 8,000,000 750,000 800,000 $3,750,000 5,000,000 (1) Compute return on investment for each department. Using return on investment, which department is most efficient at using 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. Which department generated the most residual income for the company? Residual income is clearly explained in your text, so look it up 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.
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
Related questions
Question
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Transcribed Image Text:considered an investment center).
Investment Center
Electronics
Sporting Goods
Sales
Net Income
$ 10,000,000 $
8,000,000
750,000
800,000
Average Invested
Assets
$3,750,000
5,000,000
5
5
7
8
9
(1) Compute return on investment for each department. Using return on investment, which department is most efficient at
using 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. Which
department generated the most residual income for the company? Residual income is clearly explained in your text, so look it
up 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
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Step 1: Define the return on investments.
VIEWStep 2: Determine the return on investment for both the investment centers.
VIEWStep 3: 2. Estimate the residual income of the investment centers.
VIEWStep 4: 3. Determine whether a investment with ROI 15% in electronics department can be accepted.
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