"I know headquarters wants us to add that new product line," said Dell Havasi, manager of Billings Company's Office Products Division."But I want to see the numbers before I make any move. Our division's return on investment (ROI) has led the company for three years,and I don't want any letdown."Billings Company is a decentralized wholesaler with five autonomous divisions. The divisions are evaluated on the basis of ROI, withyear-end bonuses given to the divisional managers who have the highest ROls. Operating results for the company's Office ProductsDivision for this year are given below:$ 22,300,00013,999,6008,300,4006,115,000$ 2,185,400SalesVariable expensesContribution marginFixed expensesNet operating incomeDivisional average operating assets5,575,000The company had an overall return on investment (ROI) of 17.00% this year (considering all divisions). Next year the Office ProductsDivision has an opportunity to add a new product line that would require an additional investment that would increase averageoperating assets by $3,857,400. The cost and revenue characteristics of the new product line per year would be:$9,650,00065% of salesSalesVariable expensesFixed expenses$2,583,600Required:1. Compute the Office Products Division's ROI for this year.2. Compute the Office Products Division's ROI for the new product line by itself.3. Compute the Office Products Division's ROI for next year assuming that it performs the same as this year and adds the new productline.4. If you were in Dell Havasi's position, would you accept or reject the new product line?5. Why do you suppose headquarters is anxious for the Office Products Division to add the new product line?6. Suppose that the company's minimum required rate of return on operating assets is 14% and that performance is evaluated usingresidual income.a. Compute the Office Products Division's residual income for this year.b. Compute the Office Products Division's residual income for the new product line by itself.c. Compute the Office Products Division's residual income for next year assuming that it performs the same as this year and adds thenew product line.d. Using the residual income approach, if you were in Dell Havasi's position, would you accept or reject the new product line?

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Required: 1. Compute the Office Products Division's ROl for this year. 2. Compute the Office Products Division's ROI for the new product line by itself. 3. Compute the Office Products Division's ROI for next year assuming that it performs the same as this year and adds the new product line.

Required: 1. Compute the Office Products Division's ROl for this year. 2. Compute the Office Products Division's ROI for the new product line by itself. 3. Compute the Office Products Division's ROI for next year assuming that it performs the same as this year and adds the new product line.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

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1. Compute return on investment (ROI). 2. Compute residual income. 日 તે FILE HOME INSERT * Calibri h Paste BIU Clipboard Б A1 × - Return on Investment (ROI) and Residual Income - Excel PAGE LAYOUT 11 Α' Α' FORMULAS DATA % REVIEW ? - VIEW A Alignment Number Conditional Format as Cell Cells - Font fx Б Formatting Table▾ Styles▾ Styles Editing X Sign In Adams Corporation evaluates divisional managers based on ROI. Operating A B с D E F 1 Adams Corporation evaluates divisional managers based on ROI. Operating results for the 2 company's Northern Division for last year are given below: 3 4 5 6 7 8 9 10 11 Sales Variable expenses Contribution margin Fixed expenses Net operating income Average divisional operating assets 9,500,000 12 The Northern Division has an opportunity to add a new product line at the beginning of the year as follows: $ 27,000,000 16,200,000 10,800,000 8,805,000 1,995,000 13 14 15 16 Average required investment Net operating income 17 Adams Corporation's minimum…
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The South Division of Wiig Company reported the following data for the current year. Sales Variable costs Controllable fixed costs Average operating assets 1. 2. 3. Top management is unhappy with the investment center's return on investment (ROI). It asks the manager of the South Division to submit plans to improve ROI in the next year. The manager believes it is feasible to consider the following independent courses of action. Return on Investment $2,950,000 1,947,000 Increase sales by $300,000 with no change in the contribution margin percentage. Reduce variable costs by $155,000. Reduce average operating assets by 4%. Action 1 595,000 (a) Compute the return on investment (ROI) for the current year. (Round ROI to 2 decimal places, e.g. 1.57%.) Action 2 5,000,000 Action 3 (b) Using the ROI formula, compute the ROI under each of the proposed courses of action. (Round ROI to 2 decimal places, e.g. 1.57%.) Return on investment do % % % %
Contribution Margin, Break-Even Sales, Cost-Volume-Profit Chart, Margin of Safety, and Operating Leverage Belmain Co. expects to maintain the same inventories at the end of 20Y7 as at the beginning of the year. The total of all production costs for the year is therefore assumed to be equal to the cost of goods sold. With this in mind, the various department heads were asked to submit estimates of the costs for their departments during the year. A summary report of these estimates is as follows: EstimatedFixed Cost Estimated Variable Cost(per unit sold) Production costs: Direct materials — $19 Direct labor — 13 Factory overhead $105,800 10 Selling expenses: Sales salaries and commissions 22,000 4 Advertising 7,400 — Travel 1,700 — Miscellaneous selling expense 1,800 4 Administrative expenses: Office and officers' salaries 21,500 — Supplies 2,600…
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Contribution Margin, Break-Even Sales, Cost-Volume-Profit Chart, Margin of Safety, and Operating Leverage Belmain Co. expects to maintain the same inventories at the end of 20Y7 as at the beginning of the year. The total of all production costs for the year is therefore assumed to be equal to the cost of goods sold. With this in mind, the various department heads were asked to submit estimates of the costs for their departments during the year. A summary report of these estimates is as follows: EstimatedFixed Cost Estimated Variable Cost(per unit sold) Production costs: Direct materials — $28 Direct labor — 19 Factory overhead $495,200 14 Selling expenses: Sales salaries and commissions 102,900 6 Advertising 34,800 — Travel 7,700 — Miscellaneous selling expense 8,500 6 Administrative expenses: Office and officers' salaries 100,600 — Supplies 12,400…

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