Question
Alpha Products is a decentralized wholesaler With four autonomous divisions. East division currently has operating assets of $1.000.000. Its margin is 8% and turnover is
Alpha Products is a decentralized wholesaler With four autonomous divisions. East division currently has operating assets of $1.000.000. Its margin is 8% and turnover is 2.5. The East Division has an opportunity to invest in a new project that would require an investment of $500.000. The new project will yield an additional operating income of $40.000. Alpha products requires a 6% rate of return on new projects. Q1) Calculate the ROI (Return on investment) and net operating income of East Division before making a new investment. (2points) Ans: ROI % Net operating income : $ Q2) Calculate the new ROI of East division if the new project is accepted. (Current +New) (3 points) W Ans: ROI % 23) If East Division is evaluated based on ROI, will the manager of East Division invest in the new project? Explain Why? (3 point InS: Yes/ No (circle one)
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