Megamart, a retailer of consumer goods, provides the following information on two of its departments (each considered an investment center). Investment Center Sales Income Average Invested Assets Electronics $ 40,000,000 $ 2,880,000 $ 16,000,000 Sporting goods 20,000,000 2,040,000 12,000,000 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 15% 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 Sales Income Average Invested Assets Electronics $ 40,000,000 $ 2,880,000 $ 16,000,000 Sporting goods 20,000,000 2,040,000 12,000,000 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 15% return on investment. Should the new investment opportunity be accepted?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Megamart, a retailer of consumer goods, provides the following information on two of its departments (each considered an investment center).
| Investment Center | Sales | Income | Average Invested Assets |
||||||
| Electronics | $ | 40,000,000 | $ | 2,880,000 | $ | 16,000,000 | |||
| Sporting goods | 20,000,000 | 2,040,000 | 12,000,000 | ||||||
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 15% return on investment. Should the new investment opportunity be accepted?
Transcribed Image Text: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 15% return on investment.
Should the new investment opportunity be accepted?
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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?
Return on Investment
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Return on Investment
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Electronics
Sporting Goods
Which department is most efficient at using assets to generate returns for the company?
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