Capital Investments has two divisions. Each division's required rate of return is 15%. Planned operating results for 2020 are as follows:

A

Operating Income: $15,000

Investment: $100,000

B

Operating Income: $25,000

Investment: $125,000

The company is planning an expansion, which would increase each division's investments by $25,000 and income by $4,500.

Required:

a.Compute the current Return on Investment (ROI) for each division.

b. Compute the new ROI for each division if they take on the expansion.

Record your answers in the following table:

A B

a. Current ROI

b. New ROI

c.Determine the effects after adding the new project to each division's ROI.

QUESTION 1

What was the "current ROI"for Divisions A and B, respectively?

a. 20% for A and 15% for B

b. 15% for A and 20% for B

c. 15% for both

d. 20% for both

QUESTION 2

What would be the "new ROI" for Divisions A and B,respectively,if they were to take on the expansion?

a. 15.6 % for A and 20% for B

b. 15% for A and 19.66% for B

c. 15.6% for A and 19.66% for B

d. 15% for A and 20%for B

QUESTION 3

Assuming division managers are compensated based on their division ROI (which is a reasonably good assumption),which manager is going to want to take on the expansion and which manager is not?

a. Division Manager A will want to take on the expansion,but Division Manager B will not.

b. Division Manager B will want to take on the expansion,but Division Manager Awill not.

c. Both division managers will want to take on the expansion.

d. Neither division manager will want to take on the expansion.