An investment center in Shellforth Corporation was asked to identify three proposals for its capital budget. Details

Question:

An investment center in Shellforth Corporation was asked to identify three proposals for its capital budget. Details of those proposals are:

Shellforth uses residual income to evaluate all capital budgeting projects. Its minimum required return is 12 percent.
a. Assume you are the investment center manager. Which project do you prefer? Why?
b. Assume your investment center's current ROI is 18 percent and that the president of Shellforth is thinking about using ROI for the investment center's evaluation. Would your preferences for the projects listed above change? Why?

Capital Budgeting
Capital budgeting is a practice or method of analyzing investment decisions in capital expenditure, which is incurred at a point of time but benefits are yielded in future usually after one year or more, and incurred to obtain or improve the... Corporation
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