Do not give image format Two different business units of Skysong Corporation were engaged in a friendly competition to see which location would make thebest use of a $49,000 investment. The business units had complete autonomy to spend the money on whatever investment would bestserve their locations, but they were motivated to keep ROI trends moving in a positive direction. The following financial statementsreflect each business unit's profitability and financial position at the end of the prior calendar year.Skysong Corporation uses a 7% minimum required rate of return. It is financed 70% with debt that carries an average 6% interest rate,and it averages an 8% cost of equity.SalesCOGSGross marginSelling expensesAdministrative expensesOperating incomeIncome tax expenseOperating income after-taxShow Transcribed TextAssetsCashAccounts receivableInventoryFixed assets, netLong-term investmentsTotal assetsLiabilities and EquityAccounts payableNotes payable, long-termMortgage payableRetained earningsTotal liabilities and equityDowntown$350,000221,000129,00036,00040,00076,000$33,000 $45,00013,50060,000c9,900$23,100$29,00012,00020,000217,00040,000$19,00045,000197,000Uptown$452,000291,000225,00058,000$318,000 $358,00057,000161,000$318,000$31,500$34,00019,00022,000$41,00030,000230,00057,000$358,000 Each location is considering one of the following two investments in long-term assets, where the asset would be depreciated using thestraight-line method over its useful life.1.2.(a)$49,000 for an updated and upgraded pizza oven that will allow for faster cooking times and less energy usage, with anestimated improvement in operating income of $15,000 each year (before depreciation) over its 7-year life.Show Transcribed Text$49,000 to update the atmosphere and seating capacity of the restaurant, with an anticipated operating income increase of$12,000 per year (before depreciation) over a 10-year useful life, when it will be updated again.* Your answer is incorrect.Calculate each location's ROI for last year, using total operating assets as the denominator. Here, all assets except long-terminvestments are considered operating assets. (Round answers to 4 decimal places, e.g. 0.1526.)(b)Divisional ROI last yearShow Transcribed TextROIOption 1DowntownCalculate the ROI of each potential investment on its own. (Round answers to 4 decimal places, e.g. 0.1526.)ROI0.0831DowntownOption 2UptownIf each business unit is motivated to improve its own ROI, which of these investments (if either) would each manager choose?0.1050Assuming each moves ahead with your recommendation, calculate the total ROI each location would report at the end of nextyear, assuming all other operating aspects are unchanged from the prior year. (Round answers to 4 decimal places, e.g. 0.1526.)Uptown

Profitability ratios provide insights into different aspects of a company's profitability. They can…

Two different business units of Skysong Corporation were engaged in a friendly competition to see which location would make the best use of a $49,000 investment. The business units had complete autonomy to spend the money on whatever investment would best serve their locations, but they were motivated to keep ROI trends moving in a positive direction. The following financial statements reflect each business unit's profitability and financial position at the end of the prior calendar year. Skysong Corporation uses a 7% minimum required rate of return. It is financed 70% with debt that carries an average 6% interest rate, and it averages an 8% cost of equity. Sales COGS Gross margin Selling expenses Administrative expenses Operating income Income tax expense Operating income after-tax Downtown $350,000 221,000 129,000 36,000 60,000 9,900 Uptown $452,000 $23,100 291,000 161,000 76,000 $33,000 $45,000 13,500 $31,500 40,000