Handle Fabrication is a division of a major corporation. Last year the division had total sales of $25,600,000, net operating income of $1,820,000 and average operating assets of $7,300,000. The company's minimum required rate of return is 12%. 1. The division manager wants to invest in additional delivery trucks in an effort to increase sales. The trucks would cost $700,000. The manager estimates that the additional trucks will increase distribution and therefore increase operating income by $50,000. What would be the division's return on investment after making this investment? 2. Assume that a manager would only receive her bonus if her division achieves an ROl of 25% or more. If the manager's performance were judged based on ROI, would she invest in the additional trucks? Yes or no.
Handle Fabrication is a division of a major corporation. Last year the division had total sales of $25,600,000, net operating income of $1,820,000 and average operating assets of $7,300,000. The company's minimum required rate of return is 12%. 1. The division manager wants to invest in additional delivery trucks in an effort to increase sales. The trucks would cost $700,000. The manager estimates that the additional trucks will increase distribution and therefore increase operating income by $50,000. What would be the division's return on investment after making this investment? 2. Assume that a manager would only receive her bonus if her division achieves an ROl of 25% or more. If the manager's performance were judged based on ROI, would she invest in the additional trucks? Yes or no.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Handle Fabrication is a division of a major corporation. Last year the division had total sales of $25,600,000,
net operating income of $1,820,000 and average operating assets of $7,300,000. The company's minimum
required rate of return is 12%.
1. The division manager wants to invest in additional delivery trucks in an effort to increase sales. The
trucks would cost $700,000. The manager estimates that the additional trucks will increase distribution and
therefore increase operating income by $50,000. What would be the division's return on investment after
making this investment?
2. Assume that a manager would only receive her bonus if her division achieves an ROl of 25% or more. If
the manager's performance were judged based on ROI, would she invest in the additional trucks? Yes or
no.
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