Leslie Blandings, division manager of Audiotech Inc., was debating the merits of a new product-a weather radio that would put out a warning if the county in which the listener lived were under a severe thunderstorm or tornado alert. The budgeted income of the division was $825,000 with operating assets of $4,525,000. The proposed investment would add income of $640,000 and would require an additional investment in equipment of $4,000,000. The minimum required return on investment for the company is 12%. Required: 1. Compute the ROI of the following (round to the nearest whole percent): a. The division if the radio project is not undertaken. % b. The radio project alone. % c. The division if the radio project is undertaken. % 2. Compute the residual income of the following: a. The division if the radio project is not undertaken. b. The radio project alone. c. The division if the radio project is undertaken. 3. This depends on whether Leslie's division is evaluated on the basis of ROI or on the basis of residual income. Overall division ROI wills v; so if ROI is the basis for evaluation, she will v the investment. On the other hand, residual income for the project is v and will overall residual income. If the division is evaluated on the basis of residual income, the project will be
Leslie Blandings, division manager of Audiotech Inc., was debating the merits of a new product-a weather radio that would put out a warning if the county in which the listener lived were under a severe thunderstorm or tornado alert. The budgeted income of the division was $825,000 with operating assets of $4,525,000. The proposed investment would add income of $640,000 and would require an additional investment in equipment of $4,000,000. The minimum required return on investment for the company is 12%. Required: 1. Compute the ROI of the following (round to the nearest whole percent): a. The division if the radio project is not undertaken. % b. The radio project alone. % c. The division if the radio project is undertaken. % 2. Compute the residual income of the following: a. The division if the radio project is not undertaken. b. The radio project alone. c. The division if the radio project is undertaken. 3. This depends on whether Leslie's division is evaluated on the basis of ROI or on the basis of residual income. Overall division ROI wills v; so if ROI is the basis for evaluation, she will v the investment. On the other hand, residual income for the project is v and will overall residual income. If the division is evaluated on the basis of residual income, the project will be
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Transcribed Image Text:Return on Investment and Investment Decisions
Leslie Blandings, division manager of Audiotech Inc., was debating the merits of a new product-a weather radio that would put out a warning if the county in which the listener lived were under a severe
thunderstorm or tornado alert.
The budgeted income of the division was $825,000 with operating assets of $4,525,000. The proposed investment would add income of $640,000 and would require an additional investment in equipment of
$4,000,000. The minimum required return on investment for the company is 12%.
Required:
1. Compute the ROI of the following (round to the nearest whole percent):
a. The division if the radio project is not undertaken.
%
b. The radio project alone.
0%
c. The division if the radio project is undertaken.
%
2. Compute the residual income of the following:
a. The division if the radio project is not undertaken.
b. The radio project alone.
$
c. The division if the radio project is undertaken.
3. This depends on whether Leslie's division is evaluated on the basis of ROI or on the basis of residual income. Overall division ROI wills
; so if ROI is the basis for evaluation, she will
v the investment. On the other hand, residual income for the project is
and will
v overall residual income. If the division is evaluated on the basis of
residual income, the project will be
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education