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Hoffman Ceramics, a division of Fielding Corporation, has an operating income of $64,000 and total assets of $400,000. The required rate of return for the company is 10%. The company is evaluating whether it should use return on investment (ROI) or residual income (RI) as a measurement of performance for its division managers. The manager of Hoffman Ceramics has the opportunity to undertake a new project that will require an investment of $100,000. This investment would earn $14,000 for the company. Read the requirements. *** From the standpoint of Fielding Corporation this investment is is more than Fielding's required rate of return. desirable. The ROI of the investment opportunity Requirement 4. What would the residual income (RI) be for Hoffman Ceramics if this investment opportunity were to be undertaken? Would the manager of the Hoffman Ceramics division want to make this investment if she were evaluated based on RI? Why or why not? First determine the formula to calculate the RI. Operating income ( Total assets (Use parentheses or a minus sign for a negative RI.) The residual income (RI) for Hoffman Ceramics if this investment opportunity were to be undertaken is $ 28,000 If the manager of this division is evaluated based on RI she would want to make this investment. The positive RI indicates that the division is earning more than management's expectations. Target rate of return ) RI Requirement 5. What is the RI of the investment opportunity? Would the investment be desirable from the standpoint of Fielding Corporation? Why or why not? (Use parentheses or a minus sign for a negative RI.) The RI of the investment opportunity is

Hoffman Ceramics, a division of Fielding Corporation, has an operating income of $64,000 and total assets of $400,000. The required rate of return for the company is 10%. The company is evaluating whether it should use return on investment (ROI) or residual income (RI) as a measurement of performance for its division managers. The manager of Hoffman Ceramics has the opportunity to undertake a new project that will require an investment of $100,000. This investment would earn $14,000 for the company. Read the requirements. *** From the standpoint of Fielding Corporation this investment is is more than Fielding's required rate of return. desirable. The ROI of the investment opportunity Requirement 4. What would the residual income (RI) be for Hoffman Ceramics if this investment opportunity were to be undertaken? Would the manager of the Hoffman Ceramics division want to make this investment if she were evaluated based on RI? Why or why not? First determine the formula to calculate the RI. Operating income ( Total assets (Use parentheses or a minus sign for a negative RI.) The residual income (RI) for Hoffman Ceramics if this investment opportunity were to be undertaken is $ 28,000 If the manager of this division is evaluated based on RI she would want to make this investment. The positive RI indicates that the division is earning more than management's expectations. Target rate of return ) RI Requirement 5. What is the RI of the investment opportunity? Would the investment be desirable from the standpoint of Fielding Corporation? Why or why not? (Use parentheses or a minus sign for a negative RI.) The RI of the investment opportunity is

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Hoffman Ceramics, a division of Fielding Corporation, has an operating income of $64,000 and total assets of $400,000. The required rate of return for the company is 10%. The company is evaluating whether it should use return on investment (ROI) or residual income (RI) as a measurement of performance for its division managers. The manager of Hoffman Ceramics has the opportunity to undertake a new project that will require an investment of $100,000. This investment would earn $14,000 for the company. Read the requirements. From the standpoint of Fielding Corporation this investment is is more than Fielding's required rate of return. desirable. The ROI of the investment opportunity Requirement 4. What would the residual income (RI) be for Hoffman Ceramics if this investment opportunity were to be undertaken? Would the manager of the Hoffman Ceramics division want to make this investment if she were evaluated based on RI? Why or why not? First determine the formula to calculate the RI. Operating income Total assets Target rate of return ) = RI (Use parentheses or a minus sign for a negative RI.) The residual income (RI) for Hoffman Ceramics if this investment opportunity were to be undertaken is $ 28,000 If the manager of this division is evaluated based on RI she would want to make this investment. The positive RI indicates that the division is earning more than management's expectations. Requirement 5. What is the RI of the investment opportunity? Would the investment be desirable from the standpoint of Fielding Corporation? Why or why not? (Use parentheses or a minus sign for a negative RI.) The RI of the investment opportunity is
Transcribed Image Text:Hoffman Ceramics, a division of Fielding Corporation, has an operating income of $64,000 and total assets of $400,000. The required rate of return for the company is 10%. The company is evaluating whether it should use return on investment (ROI) or residual income (RI) as a measurement of performance for its division managers. The manager of Hoffman Ceramics has the opportunity to undertake a new project that will require an investment of $100,000. This investment would earn $14,000 for the company. Read the requirements. From the standpoint of Fielding Corporation this investment is is more than Fielding's required rate of return. desirable. The ROI of the investment opportunity Requirement 4. What would the residual income (RI) be for Hoffman Ceramics if this investment opportunity were to be undertaken? Would the manager of the Hoffman Ceramics division want to make this investment if she were evaluated based on RI? Why or why not? First determine the formula to calculate the RI. Operating income Total assets Target rate of return ) = RI (Use parentheses or a minus sign for a negative RI.) The residual income (RI) for Hoffman Ceramics if this investment opportunity were to be undertaken is $ 28,000 If the manager of this division is evaluated based on RI she would want to make this investment. The positive RI indicates that the division is earning more than management's expectations. Requirement 5. What is the RI of the investment opportunity? Would the investment be desirable from the standpoint of Fielding Corporation? Why or why not? (Use parentheses or a minus sign for a negative RI.) The RI of the investment opportunity is
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