Question 1 Abstract Company has three divisions that operate autonomously. The budgets for Division A for 2021 are prepared as follows: Operating income $ 1,280,000 Investment base $ 8,000,000 For 2021, a manager of Division A is considering a proposal to add a new product line for investment of $3,000,000. The new product line will generate additional operating income of $420,000. The budgets shown above are prepared before considering the proposal. The company uses a 11% required rate of return on investment for each division. Required: For Return On Investment (ROI), show your answer in a percent form and round to two decimal places (e.g., 1.23%). Assuming the manager accepts the proposal, compute ROI and Residual Income for Division A.
Question 1
Abstract Company has three divisions that operate autonomously. The budgets for Division A for 2021 are prepared as follows:
|
Operating income |
$ 1,280,000 |
|
Investment base |
$ 8,000,000 |
For 2021, a manager of Division A is considering a proposal to add a new product line for investment of $3,000,000. The new product line will generate additional operating income of $420,000. The budgets shown above are prepared before considering the proposal. The company uses a 11% required rate of
Required:
For Return On Investment (ROI), show your answer in a percent form and round to two decimal places (e.g., 1.23%).
Assuming the manager accepts the proposal, compute ROI and Residual Income for Division A.
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