Return on Investment and Investment Decisions Leslie Blandings, division manager of Audiotech Inc., wasdebating the merits of a new product—a weather radio that would putout a warning if the county in which the listener lived were undera severe thunderstorm or tornado alert. The budgeted income of the division was $725,000 with operatingassets of $3,625,000. The proposed investment would add income of$640,000 and would require an additional investment in equipment of$4,000,000. The minimum required return on investment for thecompany is 12%. 1. Compute the ROI of the following (round tothe nearest whole percent): a. The division if the radioproject is not undertaken.   % b. The radio project alone.   % c. The division if the radioproject is undertaken.   % 2. Compute the residual income of thefollowing: a. The division if the radioproject is not undertaken. $ b. The radio project alone. $ c. The division if the radioproject is undertaken. $

FINANCIAL ACCOUNTING
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Chapter1: Financial Statements And Business Decisions
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Return on Investment and Investment Decisions

Leslie Blandings, division manager of Audiotech Inc., wasdebating the merits of a new product—a weather radio that would putout a warning if the county in which the listener lived were undera severe thunderstorm or tornado alert.

The budgeted income of the division was $725,000 with operatingassets of $3,625,000. The proposed investment would add income of$640,000 and would require an additional investment in equipment of$4,000,000. The minimum required return on investment for thecompany is 12%.

1. Compute the ROI of the following (round tothe nearest whole percent):

a. The division if the radioproject is not undertaken.

  %

b. The radio project alone.

  %

c. The division if the radioproject is undertaken.

  %

2. Compute the residual income of thefollowing:

a. The division if the radioproject is not undertaken.

$

b. The radio project alone.

$

c. The division if the radioproject is undertaken.

$

 

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