Chapter 23, Problem 23.23E

ROI and RI. (D. Kleespie, adapted) The Sports Equipment Company produces a wide variety of sports equipment. Its newest division, Golf Technology, manufactures and sells a single product—AccuDriver, a golf club that uses global positioning satellite technology to improve the accuracy of golfers’ shots. The demand for AccuDriver is relatively insensitive to price changes. The following data are available for Golf Technology, which is an investment center for Sports Equipment:

Total annual fixed costs	$26,000,000
Variable cost per AccuDriver	$ 600
Number of AccuDrivers sold each year	170,000
Average operating assets invested in the division	$46,000,000

1. 1. Compute Golf Technology’s ROI if the selling price of AccuDrivers is $800 per club.

Required

1. 2. If management requires an ROI of at least 25% from the division, what is the minimum selling price that the Golf Technology Division should charge per AccuDriver club?
2. 3. Assume that Sports Equipment judges the performance of its investment centers on the basis of RI rather than ROI. What is the minimum selling price that Golf Technology should charge per AccuDriver if the company’s required rate of return is 20%?