Effect of proposals on divisional performance A condensed income statement for the Commereial Division of Maxell Manufacturing Inc. for the year ended December 31 , 20Y9, is as follows: Assume that the Commerciat Division recoived no allocations from support departments. The president of Maxeil Manulacturing has indicated that the divisionis 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: Proposil 1: Transter equiment with a book value of \$312,500 to other divisions at no gain or loss and lease similar equment. 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 whehanged. 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 serapped at no gain or lons. The new equipment would increase invested assets by an additional 51,875,000 for the year. Proposal 3: Reduce invested assets by discomtinuing a product line. This action would eliminate sales of \$595,000, reduce cost of goods sold by \$406,700, and refuce operating expenses by $175,000. Assets of $1,338,000 would be transferred to other divions at no gain or loss. Required: 1. Using the Dupont formuls for retum on investment, determine the profit margin, investment fumbver, and ceturn on imvestment for the Commtrial Division for the 1. Using the Dupont formula for return on investment, determine the peofit margin, investment turnover, and return on investment for the Commerdial Division for the past year, if required, round your answers to two decimal place. 2. Prepare condensed estimated income statements and compute the invested assets for each proposal, 3. Using the bupont formula for retum on investment, determine the prof margin, investment furnover, and return on inventment for each proposat. Mound the Investment turnever and return on investment to one decimal place. 3. Using the Dufont formula for return on investment, determine the proft margin, investment turnover, and return on investment for each proposat. Aound the investment turnover and return on investment to one decimal place. 4. Which of the three properals nould meet the required 21 w retum on inveitment? the presidents required 21 W return on imectmem? Eoter your increaie in investment tumover answer as a percentage of current invetement purnover hound interim calculotions (including previously caiculated) and final answer to one decimal place
