Megamart, a retailer of consumer goods, provides the following information on two of its departments (each considered an investment center). Investment Center Average Invested Sales Income Assets Electronics $63,460,000 $3,173,000 $16,700,000 Sporting goods 19,050,000 2,286,000 12,700,000 Exercise 22-10 Computing return on investment and residual income; investing decision LO A1 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? 3. Assume the Electronics department is presented with a new investment opportunity that will yield a 14% return on investment. Should the new investment opportunity be accepted?

Megamart, a retailer of consumer goods, provides the following information on two of its departments (each considered an investment center). Investment Center Average Invested Sales Income Assets Electronics $63,460,000 $3,173,000 $16,700,000 Sporting goods 19,050,000 2,286,000 12,700,000 Exercise 22-10 Computing return on investment and residual income; investing decision LO A1 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? 3. Assume the Electronics department is presented with a new investment opportunity that will yield a 14% return on investment. Should the new investment opportunity be accepted?

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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