S Wescott Company has three divisions: A, B, and C. The company has a hurdle rate of 8 percent. Selected operating data for the three divisions are as follows: Sales revenue Cost of goods sold Miscellaneous operating expenses Interest and taxes 23 Average invested assets Division A Division B Division C $ 1,290,000 $ 1,053,000 $ 1,052,000 797,000 71,000 55,000 9,511,000 773,000 59,000 48,000 2,259,000 764,000 60,000 48,000 3,716,000 Wescott is considering an expansion project in the upcoming year that will cost $5.7 million and return $521,000 per year. The project would be implemented by only one of the three divisions. Required: 1. Compute the ROI for each division. 2. Compute the residual income for each division. 3. Rank the divisions according to the ROI and residual income of each. 4-a. Compute the return on investment on the proposed expansion project. 4-b. Is this an acceptable project? 5. Without any additional calculations, state whether the proposed project would increase or decrease each division's ROI. 6. Compute the new ROI and residual income for each division if the project was implemented within that division. Complete this question by entering your answers in the tabs below. Req 1 Req 2 Req 3 Req 4A Req 4B Req 5 Req 6 Compute the ROI for each division. (Do not round your intermediate calculations. Round your percentage answer to 2 decimal places, (i.e. 0.1234 should be entered as 12.34%.)) ROI Division A % Division B % Division C %
S Wescott Company has three divisions: A, B, and C. The company has a hurdle rate of 8 percent. Selected operating data for the three divisions are as follows: Sales revenue Cost of goods sold Miscellaneous operating expenses Interest and taxes 23 Average invested assets Division A Division B Division C $ 1,290,000 $ 1,053,000 $ 1,052,000 797,000 71,000 55,000 9,511,000 773,000 59,000 48,000 2,259,000 764,000 60,000 48,000 3,716,000 Wescott is considering an expansion project in the upcoming year that will cost $5.7 million and return $521,000 per year. The project would be implemented by only one of the three divisions. Required: 1. Compute the ROI for each division. 2. Compute the residual income for each division. 3. Rank the divisions according to the ROI and residual income of each. 4-a. Compute the return on investment on the proposed expansion project. 4-b. Is this an acceptable project? 5. Without any additional calculations, state whether the proposed project would increase or decrease each division's ROI. 6. Compute the new ROI and residual income for each division if the project was implemented within that division. Complete this question by entering your answers in the tabs below. Req 1 Req 2 Req 3 Req 4A Req 4B Req 5 Req 6 Compute the ROI for each division. (Do not round your intermediate calculations. Round your percentage answer to 2 decimal places, (i.e. 0.1234 should be entered as 12.34%.)) ROI Division A % Division B % Division C %
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
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Transcribed Image Text:S
Wescott Company has three divisions: A, B, and C. The company has a hurdle rate of 8 percent. Selected operating data for the three
divisions are as follows:
Sales revenue
Cost of goods sold
Miscellaneous operating expenses
Interest and taxes
23
Average invested assets
Division A
Division B Division C
$ 1,290,000 $ 1,053,000 $ 1,052,000
797,000
71,000
55,000
9,511,000
773,000
59,000
48,000
2,259,000
764,000
60,000
48,000
3,716,000
Wescott is considering an expansion project in the upcoming year that will cost $5.7 million and return $521,000 per year. The project
would be implemented by only one of the three divisions.
Required:
1. Compute the ROI for each division.
2. Compute the residual income for each division.
3. Rank the divisions according to the ROI and residual income of each.
4-a. Compute the return on investment on the proposed expansion project.
4-b. Is this an acceptable project?
5. Without any additional calculations, state whether the proposed project would increase or decrease each division's ROI.
6. Compute the new ROI and residual income for each division if the project was implemented within that division.
Complete this question by entering your answers in the tabs below.
Req 1
Req 2
Req 3
Req 4A
Req 4B
Req 5
Req 6
Compute the ROI for each division. (Do not round your intermediate calculations. Round your percentage answer to 2 decimal
places, (i.e. 0.1234 should be entered as 12.34%.))
ROI
Division A
%
Division B
%
Division C
%
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