Question
Department income totals $500,000, investment in the department is $4,500,000, and the company's cost of capital is 9%. a) Calculate the return on investment (ROI).
Department income totals $500,000, investment in the department is $4,500,000, and the company's cost of capital is 9%.
a) Calculate the return on investment (ROI).
b) Calculate economic value added.
c) Assume there is a capital project that requires a $400,000 investment for a $37,000 return. Would the department manager be more likely to accept the project if department performance was evaluated using ROI or economic value added? Why?
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Financial Accounting For Decision Makers
Authors: Peter Atrill, Eddie McLaney
7th Edition
027378563X, 9780273785637
