Within a large rental corporation where the commercial rental segment dominated, Kenneth managed the residential rental segment Kenneth enjoyed taking the underdog role, trying to generate more income and higher returns than corporate expected. The corporate minimum required return was 8%, while its WACC was 7%. He recently became aware of new rental properties in a prime location. He assumed he'd be able to secure two key rental properties in his target area. He considered where his division stood in terms of profitability and asset position at year-end, and created a projection for the next year as follows. Sales Gross margin Operating income After-tax operating income Operating assets Total assets Current liabilities Current Year-End $657,000 285,000 139,000 102,000 1,440,000 1,700,000 197,000 Projected Next Year $807,000 399,000 195,000 140,900 2,220,000 2,480,000 270,000
Within a large rental corporation where the commercial rental segment dominated, Kenneth managed the residential rental segment Kenneth enjoyed taking the underdog role, trying to generate more income and higher returns than corporate expected. The corporate minimum required return was 8%, while its WACC was 7%. He recently became aware of new rental properties in a prime location. He assumed he'd be able to secure two key rental properties in his target area. He considered where his division stood in terms of profitability and asset position at year-end, and created a projection for the next year as follows. Sales Gross margin Operating income After-tax operating income Operating assets Total assets Current liabilities Current Year-End $657,000 285,000 139,000 102,000 1,440,000 1,700,000 197,000 Projected Next Year $807,000 399,000 195,000 140,900 2,220,000 2,480,000 270,000
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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a
Transcribed Image Text:X Your answer is incorrect.
Calculate the ROI for Kenneth's residential division at the end of the current year and at the end of the following year, per his
projections (where operating assets are considered investments). Assume that Kenneth is evaluated on generating a positive-
trending ROI. (Round answers to 2 decimal places, e.g. 15.25%.)
Current ROI
Projected ROI
7.08
6.35
%
%
Transcribed Image Text:Within a large rental corporation where the commercial rental segment dominated, Kenneth managed the residential rental segment.
Kenneth enjoyed taking the underdog role, trying to generate more income and higher returns than corporate expected. The
corporate minimum required return was 8%, while its WACC was 7%. He recently became aware of new rental properties in a prime
location. He assumed he'd be able to secure two key rental properties in his target area. He considered where his division stood in
terms of profitability and asset position at year-end, and created a projection for the next year as follows.
Sales
Gross margin
Operating income
After-tax operating income
Operating assets
Total assets
Current liabilities
Current Year-End
$657,000
285,000
139,000
102,000
1,440,000
1,700,000
197,000
Projected Next Year
$807,000
399,000
195,000
140,900
2,220,000
2,480,000
270,000
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