Required 1. Compute the residual income for each of the opportunities. 2. Compute the divisional residual income for each of the following four alternatives: a. The MP3 player is added. b. The voice recorder is added. c. Both investments are added. d. Neither investment is made; the status quo is maintained. Assuming that divisional managers are evaluated and rewarded on the basis of residual income, which alternative do you think the divisional manager will choose? 3. Compute the ROI for each investment. 4. Compute the divisional ROI for each of the following four alternatives:
Required 1. Compute the residual income for each of the opportunities. 2. Compute the divisional residual income for each of the following four alternatives: a. The MP3 player is added. b. The voice recorder is added. c. Both investments are added. d. Neither investment is made; the status quo is maintained. Assuming that divisional managers are evaluated and rewarded on the basis of residual income, which alternative do you think the divisional manager will choose? 3. Compute the ROI for each investment. 4. Compute the divisional ROI for each of the following four alternatives:
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter19: Capital Investment
Section: Chapter Questions
Problem 4CE: Manzer Enterprises is considering two independent investments: A new automated materials handling...
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![10-11
The manager of a division that produces electronic audio products is considering the
opportunity to invest in two independent projects. The first is a portable MP3 player.
The second is a voice recorder designed as a module for visor or palm PDAS. With-
out the investments, the division will have average assets for the coming year of $18
million and expected operating income of $2.7 million. The expected operating
incomes and the outlay required for each investment are as follows:
Residual Income
LO3, LO4
МP3 Player
Voice Recorder
Operating income
Outlay
$116,000
$105,000
800,000
750,000
Corporate headquarters has made available up to $2 million of capital for this
division. Any funds not invested by the division will be retained by headquarters
and invested to earn the company's minimum required rate, 12%.
Required
1. Compute the residual income for each of the opportunities.
2. Compute the divisional residual income for each of the following four alternatives:
a. The MP3 player is added.
b. The voice recorder is added.
c. Both investments are added.
d. Neither investment is made; the status quo is maintained.
Assuming that divisional managers are evaluated and rewarded on the basis of
residual income, which alternative do you think the divisional manager will
choose?
3. Compute the ROI for each investment.
4. Compute the divisional ROI for each of the following four alternatives:
a. The MP3 player is added.
b. The voice recorder is added.
c. Both investments are added.
d. Neither investment is made; the status quo is maintained.
Assuming that divisional managers are evaluated and rewarded on the basis of
ROI performance, which alternative do you think the divisional manager will
choose?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fd8641fab-1994-4e09-a69f-cc0dc5fa3455%2F874bf7e1-60f1-483e-bff3-eff43d4c2bc5%2Fks52aa_processed.png&w=3840&q=75)
Transcribed Image Text:10-11
The manager of a division that produces electronic audio products is considering the
opportunity to invest in two independent projects. The first is a portable MP3 player.
The second is a voice recorder designed as a module for visor or palm PDAS. With-
out the investments, the division will have average assets for the coming year of $18
million and expected operating income of $2.7 million. The expected operating
incomes and the outlay required for each investment are as follows:
Residual Income
LO3, LO4
МP3 Player
Voice Recorder
Operating income
Outlay
$116,000
$105,000
800,000
750,000
Corporate headquarters has made available up to $2 million of capital for this
division. Any funds not invested by the division will be retained by headquarters
and invested to earn the company's minimum required rate, 12%.
Required
1. Compute the residual income for each of the opportunities.
2. Compute the divisional residual income for each of the following four alternatives:
a. The MP3 player is added.
b. The voice recorder is added.
c. Both investments are added.
d. Neither investment is made; the status quo is maintained.
Assuming that divisional managers are evaluated and rewarded on the basis of
residual income, which alternative do you think the divisional manager will
choose?
3. Compute the ROI for each investment.
4. Compute the divisional ROI for each of the following four alternatives:
a. The MP3 player is added.
b. The voice recorder is added.
c. Both investments are added.
d. Neither investment is made; the status quo is maintained.
Assuming that divisional managers are evaluated and rewarded on the basis of
ROI performance, which alternative do you think the divisional manager will
choose?
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