! Required information Use the following information for the Exercises below. [The following information applies to the questions displayed below.] Megamart, a retailer of consumer goods, provides the following information on two of its departments (each considered an investment center). Average Invested Assets Investment Center Sales Income Electronics $43,000,000 $2,752,000 19,800,000 $17,200,000 13,200,000 Sporting goods 1,980,000 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 10% 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?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Please give an explanation on the third part of the problem. 

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Required information
Use the following information for the Exercises below.
[The following information applies to the questions displayed below.]
Megamart, a retailer of consumer goods, provides the following information on two of its departments (each
considered an investment center).
Average
Investment Center
Sales
Income
Invested Assets
$43,000,000 $2,752,000
19,800,000
$17,200,000
13,200,000
Electronics
Sporting goods
1,980,000
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 10% 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:! Required information Use the following information for the Exercises below. [The following information applies to the questions displayed below.] Megamart, a retailer of consumer goods, provides the following information on two of its departments (each considered an investment center). Average Investment Center Sales Income Invested Assets $43,000,000 $2,752,000 19,800,000 $17,200,000 13,200,000 Electronics Sporting goods 1,980,000 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 10% 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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