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: es Sales revenue Cost of goods sold Miscellaneous operating expenses Interest and taxes Average invested assets Division A $ 1,255,000 Division B $920,000 Division C $ 898,000 776,000 675,000 652,000 64,000 52,000 53,100 48,000 8,300,000 41,500 3,215,000 41,000 1,930,000 Wescott is considering an expansion project in the upcoming year that will cost $5 million and return $450,000 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. Note: Do not round your intermediate calculations. Enter your answers as a whole percentage, (i.e., 0.123 should be entered as 12%.) ROI Division A % Division B % Division C %
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: es Sales revenue Cost of goods sold Miscellaneous operating expenses Interest and taxes Average invested assets Division A $ 1,255,000 Division B $920,000 Division C $ 898,000 776,000 675,000 652,000 64,000 52,000 53,100 48,000 8,300,000 41,500 3,215,000 41,000 1,930,000 Wescott is considering an expansion project in the upcoming year that will cost $5 million and return $450,000 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. Note: Do not round your intermediate calculations. Enter your answers as a whole percentage, (i.e., 0.123 should be entered as 12%.) ROI Division A % Division B % Division C %
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text: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:
es
Sales revenue
Cost of goods sold
Miscellaneous operating expenses
Interest and taxes
Average invested assets
Division A
$ 1,255,000
Division B
$920,000
Division C
$ 898,000
776,000
675,000
652,000
64,000
52,000
53,100
48,000
8,300,000
41,500
3,215,000
41,000
1,930,000
Wescott is considering an expansion project in the upcoming year that will cost $5 million and return $450,000 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.
Note: Do not round your intermediate calculations. Enter your answers as a whole percentage, (i.e., 0.123 should be entered
as 12%.)
ROI
Division A
%
Division B
%
Division C
%
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