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Gable Ceramics, a division of Berkner Corporation, has an operating income of $78,000 and total assets of $416,000. The required rate of return for the

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Gable Ceramics, a division of Berkner Corporation, has an operating income of $78,000 and total assets of $416,000. The required rate of return for the company is 13%. The company is evaluating whether it should use return on investment (ROI) or residual income (RI) as a measurement of performance for its division managers. The manager of Gable Ceramics has the opportunity to undertake a new project that will require an investment of $104,000. This investment would earn $15,600 for the company. Read the requirements. Requirement 1. What is the original retum on investment (ROI) for Gable Ceramics (before making any additional investment)? First determine the formula to calculate the ROI. Operating income Total assets ROI (Enter the percentage to two decimal places.) The original return on investment (ROI) for Gable Ceramics is %. Requirement 2. What would the ROI be for Gable Ceramics if this investment opportunity were undertaken? Would the manager of the Gable Ceramics division want to make this investment if she were evaluated based on ROI? Why or why not? (Enter the percentage to two decimal places.) If this investment opportunity were undertaken, the ROI would be % If the manager of this division is evaluated based on ROI she want to make this investment. Investing in the new project would the division's ROI. Requirement 3. What is the ROI of the investment opportunity? Would the investment be desirable from the standpoint of Berkner Corporation? Why or why not? (Enter the percentage to two decimal places.) The ROI of the investment opportunity is %. From the standpoint of Berkner Corporation this investment desirable. The ROI of the investment opportunity Berkner's required rate of return. Requirement 4. What would the residual income (RI) be for Gable Ceramics if this investment opportunity were to be undertaken? Would the manager of the Gable Ceramics division want to make this investment if she were evaluated based on RI? Why or why not? First determine the formula to calculate the RI. Operating income Tolal assets Target rate of return RI (Use parentheses or a minus sign for a negative RL.) The residual income (RI) for Gable Ceramics if this investment opportunity were to be undertaken is Requirements 1. What is the original return on investment (ROI) for Gable Ceramics (before making any additional investment)? 2. What would the ROI be for Gable Ceramics if this investment opportunity were undertaken? Would the manager of the Gable Ceramics division want to make this investment if she were evaluated based on ROI? Why or why not? 3. What is the ROI of the investment opportunity? Would the investment be desirable from the standpoint of Berkner Corporation? Why or why not? 4. What would the residual income (RI) be for Gable Ceramics if this investment opportunity were to be undertaken? Would the manager of the Gable Ceramics division want to make this investment if she were evaluated based on RI? Why or why not? 5. What is the RI of the investment opportunity? Would the investment be desirable from the standpoint of Berkner Corporation? Why or why not? 6. Which performance measurement method, ROI or RI, promotes goal congruence? Why

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