Effect of proposals on divisional performance

A condensed income statement for the Commercial Division of Maxell Manufacturing Inc. for the year ended December $31,20$Y$9,$ is as follows:

Assume that the Commercial Division received no allocations from support departments. The president of Maxell Manufacturing has indicated that

the division's return on a $$2,500,000$ investment must be increased to at least $21\%$ 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 $$312,500$ to other divisions at no gain or loss and lease similar equipment. The annual lease

payments would exceed the amount of depreciation expense on the old equipment by $$105,000.$ This increase in expense would be included as part

of the cost of goods sold. Sales would remain unchanged.

Proposal $2$: Purchase new and more efficient machining equipment and thereby reduce the cost of goods sold by $$560,000$ after considering the

effects of depreciation expense on the new equipment. Sales would remain unchanged, and the old equipment, which has no remaining book value,

would be scrapped at no gain or loss. The new equipment would increase invested assets by an additional $$1,875,000$ for the year.

Proposal $3$: Reduce invested assets by discontinuing a product line. This action would eliminate sales of $$595,000,$ reduce cost of goods sold by

$$406,700,$ and reduce operating expenses by $$175,000.$ Assets of $$1,338,000$ would be transferred to other divisions at no gain or loss.Required:

Using the DuPont formula for return on investment, determine the profit margin, investment turnover, and return on investment for the

Commercial Division for the past year. If required, round your answers to two decimal place.

Commercial Division

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To analyze differences in the return on investment across division, the DuPont formula is used. The DuPont formula views the return on

investment as the product of the profit margin and the investment turnover.Prepare condensed estimated income statements and compute the invested assets for each proposal.

Maxell Manufacturing Inc.$-$Commercial Division

Estimated Income Statements

For the Year Ended December $31,20$ Y$9$

$\backslash$table$[[$Line Item Description,Proposal $1,$Proposal $2,$Proposal $3],[$Sales$,$$$,$$$,$$