I need some help with this one. Return on Investment and Residual Income Skyview Company has two divisions, Residential Skylights and Automotive Sunroofs. The manager of the Residential Skylights Division is evalu- ated based on return on investment (ROI). The manager of the Automotive Sunroofs Division is evaluated based on residual income.The required return is 12% and the return on investment has been 16% for the two divisions. Each manager is currently considering a project with the following projections (in$000s): Residential Skylights Automotive Sunroofs Projected operating income $350 $560 Investment in operating assets $2,500 $4,000 Required a. What is the Residential Skylights’ ROI? b. What is Automotive Sunroofs’ residual income? c. According to the current evaluation system for managers, which manager(s) would have incen- tive to undertake the project
I need some help with this one. Return on Investment and Residual Income Skyview Company has two divisions, Residential Skylights and Automotive Sunroofs. The manager of the Residential Skylights Division is evalu- ated based on return on investment (ROI). The manager of the Automotive Sunroofs Division is evaluated based on residual income.The required return is 12% and the return on investment has been 16% for the two divisions. Each manager is currently considering a project with the following projections (in$000s): Residential Skylights Automotive Sunroofs Projected operating income $350 $560 Investment in operating assets $2,500 $4,000 Required a. What is the Residential Skylights’ ROI? b. What is Automotive Sunroofs’ residual income? c. According to the current evaluation system for managers, which manager(s) would have incen- tive to undertake the project
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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I need some help with this one.
ated based on return on investment (ROI). The manager of the Automotive Sunroofs Division is evaluated based on residual income.The required return is 12% and the return on investment has been 16% for the two divisions. Each manager is currently considering a project with the following projections (in$000s):
|
Residential
Skylights
|
Automotive
Sunroofs
|
|
| Projected operating income | $350 | $560 |
| Investment in operating assets | $2,500 | $4,000 |
Required
a. What is the Residential Skylights’ ROI?
b. What is Automotive Sunroofs’ residual income?
c. According to the current evaluation system for managers, which manager(s) would have incen-
tive to undertake the project
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