Top management is trying to determine which would be the best choice of the following investment opportunities: Data of investment choices: 1 2 3 Sales $10,000,000 $9,000,000 $6,000,000 Operating income 200,000 300,000 300,000 Average operating assets 2,000,000 3,000,000 3,000,000 Minimum required rate of return = 8% Evaluate the three investment choices: Each investment choice has the same ROI, 10 percent. Choices 2 & 4 have a higher residual income then Choice 1, but that is to be expected given that they appear to be larger. Because residual income is an absolute measure, it should not be used to compare investment centers of different size. In general, larger investment centers should have larger residual incomes. Each investment choice has a different ROI. Choices 2 & 3 have a higher residual income then Choice 1, but that is to be expected given that they appear to be larger. Because residual income is an absolute measure, it should not be used to compare investment centers of different size. In general, larger investment centers should have larger residual incomes. Each investment choice has the same ROI, 10 percent. Choices 1 & 3 have a higher residual income then Choice 2, but that is to be expected given that they appear to be larger. Because residual income is an absolute measure, it should not be used to compare investment centers of different size. In general, larger investment centers should have larger residual incomes. Each investment choice has the same ROI, 10 percent. Choices 2 & 3 have a higher residual income then Choice 1, but that is to be expected given that they appear to be larger. Because residual income is an absolute measure, it should not be used to compare investment centers of different size. In general, larger investment centers should have larger residual incomes.
QUESTION 31
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Top management is trying to determine which would be the best choice of the following investment opportunities:
Data of investment choices:
1
2
3
Sales
$10,000,000
$9,000,000
$6,000,000
Operating income
200,000
300,000
300,000
Average operating assets
2,000,000
3,000,000
3,000,000
Minimum required
rate of return = 8%Evaluate the three investment choices:
Each investment choice has the same ROI, 10 percent. Choices 2 & 4 have a higher residual income then Choice 1, but that is to be expected given that they appear to be larger. Because residual income is an absolute measure, it should not be used to compare investment centers of different size. In general, larger investment centers should have larger residual incomes.
Each investment choice has a different ROI. Choices 2 & 3 have a higher residual income then Choice 1, but that is to be expected given that they appear to be larger. Because residual income is an absolute measure, it should not be used to compare investment centers of different size. In general, larger investment centers should have larger residual incomes.
Each investment choice has the same ROI, 10 percent. Choices 1 & 3 have a higher residual income then Choice 2, but that is to be expected given that they appear to be larger. Because residual income is an absolute measure, it should not be used to compare investment centers of different size. In general, larger investment centers should have larger residual incomes.
Each investment choice has the same ROI, 10 percent. Choices 2 & 3 have a higher residual income then Choice 1, but that is to be expected given that they appear to be larger. Because residual income is an absolute measure, it should not be used to compare investment centers of different size. In general, larger investment centers should have larger residual incomes.
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