Effect of Proposals on Divisional Ferformance A condensed income statement for the Electronics Division of Gihbs Industries inc. for the year ended December 31 is as follows: Assurne that the Electronics Division received no cost allocatons from service departments. The presidemt of Gihbil Industries Inc. has indicated that the division's return on a $1,900,000 investment must be increased to at least 12.6% by the end of the next. year if operations are to continue. The division manager is considering the following three proposals: Proposal 1: Transfer equipment with a book value of $380,000 to other divisions at no gain or loss and loase similar equipment. The annual lease poyments would be less than the amount of depreciation expense on the old ocuipment by 168,400 . This decrease in expense would be included as part of the cost of goods sold. Sales would remain unchanged. Proposal 2: Reduce invested asuts by eiscontinuing a product line. This action would eliminate sales of $403,500, reduce cost of peods soid by 3269,800 , and reduce operating expenses by $118,800. Assets of $962,000 would be transfermd to other divisions at no gain or loss. Proposar 3: Purchase new and more efncient machinery and thereby reduce the cost of goods sold by $250,800 after considering the effects of depreciation expense on the new equipment. Sales would remain unchanged, and the old machinery, which has no remaining book value, would be scrapped at no gain or less. The new machinery would increase invested assets by $950,000 for the year. Required: 1. Using the Dupont formula for return on investment, determine the profit margin, investment turnover, and return on investrinent for the Electronics Division for the past yeac. Round your answers to one decimal place. Electronics Division 1. Using the DuPont formula for return on investment, determine the prons margin, investment furnover, and return on investment for the Electronics Division for the past year. Round your answers to one decimal place. 2. Prepare condensed estimated income statements and corpute the invested assets for each proposal. 3. Using the Dupont formula for return on imvestment, determine the profit margh, irvestment turnover, and return on inveument for each proposal. Round interim calculations (including previously calculated) and final answer to one decimal place. 3. Using the Dupont formula for return on investment, determine the profit margin, investment turnever, and return on investment for each proposal. Round interim calculations (including previously calculated) and final answer to one decimal place. 4. Which of the three proposals would meet the required 12.6% retum on investment 5. If the Electronics Division were in an industry where the profit margin could not be increased, how much would the investment turnover have to increase to meet the president's required 12.6% retum on investment? Enter your increase in investment turnover answer as a percentoge of current investment turnover. Round interim calculations (including previously calculated) and final answer to one decimal place
