Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Assignment 8.1 Return on Investment and Economic Value Added Calculations with varying Assumptions Knitplx Products is a division of Parker Textiles Inc. During the coming

image text in transcribed
image text in transcribed
Assignment 8.1 Return on Investment and Economic Value Added Calculations with varying Assumptions Knitplx Products is a division of Parker Textiles Inc. During the coming year, it expects to earn income of $320,000 based on sales of $3.45 million Without any new Investments, the division will have average operating assets of $3 million. The division is considering a capital investment project- adding knitting machines to produce galters--that requires an additional investment of $600,000 and increases net income by $57,500 (sales would Increase by $575,000). If made, the investment would increase beginning operating assets by $600,000 and ending operating assets by $410,000. Assume that the actual cost of capital for the company is 7%. Required: 1. Compute the Rol for the division without the investment. Round your answer to two decimal places. % 2. Compute the margin and turnover ratios without the investment. Show that the product of the margin and turnover ratios equals the ROI computed In Requirement 1. Round your answers to two decimal places. Margin % Turnover ROI 96 3. Conceptual Connection: Compute the ROI for the division with the new investment. Round your answer to one decimal place. % 4. Conceptual Connection: Compute the margin and turnover ratios for the division with the new Investment. Round your answers to two decimal places. How do these compare with the old ratios? Margin % Turnover 5. Conceptual Connection: Compute the EVA of the division with and without the investment. EVA without the investment EVA with the investment Should the manager decide to make the knitting machine investment

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Funded The Entrepreneurs Guide To Raising Your First Round

Authors: Katherine Hague

1st Edition

1491940263, 9781491940266

More Books

Students also viewed these Accounting questions