Megamart provides the following information on its two investment centers. Investment Center Electronics......... Sporting Goods..... Sales $40,000,000 20,000,000 Income $2,880,000 2,040,000 Average Assets $16,000,000 12,000,000 1. Compute return on investment for each center. Using return on investment, which center is most effi- cient at using assets to generate income? 2. Assume a target income of 12% of average assets. Compute residual income for each center. Which center generated the most residual income? 3. Assume the Electronics center is presented with a new investment opportunity that will yield a 15% return on investment. Should the new investment opportunity be accepted? The target return is 12%.

Megamart provides the following information on its two investment centers. Investment Center Electronics......... Sporting Goods..... Sales $40,000,000 20,000,000 Income $2,880,000 2,040,000 Average Assets $16,000,000 12,000,000 1. Compute return on investment for each center. Using return on investment, which center is most effi- cient at using assets to generate income? 2. Assume a target income of 12% of average assets. Compute residual income for each center. Which center generated the most residual income? 3. Assume the Electronics center is presented with a new investment opportunity that will yield a 15% return on investment. Should the new investment opportunity be accepted? The target return is 12%.

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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