The following is partial information for Charleston Company’s most recent year of operation. It manufactures lawn mowers and categorizes its operations into two divisions: Bermuda and Midiron. Bermuda Division Midiron Division Sales revenue ? $ 600,000 Average invested assets $ 2,500,000 ? Net operating income $ 160,000 $ 150,000 Profit margin 20 % ? Investment turnover ? 0.16 Return on investment ? ? Residual income $ 40,000 $ (30,000 ) Required: 1. Without making any calculations, determine whether each division’s return on investment is above or below Charleston’s hurdle rate. 2. Determine the missing amounts in the preceding table. 3. What is Charleston’s hurdle rate?
The following is partial information for Charleston Company’s most recent year of operation. It manufactures lawn mowers and categorizes its operations into two divisions: Bermuda and Midiron.
| Bermuda Division | Midiron Division | ||||||
| Sales revenue | ? | $ | 600,000 | ||||
| Average invested assets | $ | 2,500,000 | ? | ||||
| Net operating income | $ | 160,000 | $ | 150,000 | |||
| Profit margin | 20 | % | ? | ||||
| Investment turnover | ? | 0.16 | |||||
| ? | ? | ||||||
| Residual income | $ | 40,000 | $ | (30,000 | ) | ||
Required:
1. Without making any calculations, determine whether each division’s return on investment is above or below Charleston’s hurdle rate.
2. Determine the missing amounts in the preceding table.
3. What is Charleston’s hurdle rate?
4-a. Suppose Charleston has the opportunity to invest additional assets to help expand the company’s market share. The expansion would require an average investment of $2,800,000 and would generate $140,000 in additional income. Calculate the return on investment of the proposed expansion.
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