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Eifect of proposals on divisional performance A condensed income statement for the Electronics Division of Gibbli Industries Inc. for the vear ended December 31, 20Y9, is as follows: Assume that the Electronics Division recelved no allocations from support departments. The president of Gihbil iodustries inc. has indicated that the division's return on a $1,050,000 investment must be increased to at least 20% by the end of the next year operations are to continve. The division manager is considering the following three proposals: Progosal 1: Transfer equipment with a book value of $300,000 to other divisions at no gain or loss and lease similar equigment. The annual iease payments would be iess than the amount of depreclation expense on the old equipment by $31,400. This decrease in expense would be included as part of the cast of goods sold. 5ales would remain unchanged. Progosal 2: Reduce invected assets by discontinuing a product line. This action weuld eliminate s ales of $160,000, reduce cost of goods sold by $119,550, and redoce. operating expenses by 560,000 . Assets of $112,500 would be transferred to other divisions at no gain or loss. Propocal 3: Purchase new and more efficient machinery and thereby reduce the cost of ooods sold by $189,000 after considering the effects of depreciabion 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 loss. The new machinery would increase imested assets by $918,750 for the year. Required 1. Using the Dupoot formula for retum on investment, determine the prafit margin, Investment turnover, and return on investment for the Eiectronicis Division for the past year, if required, round your answers to ene decimal place. past year. If required, round your answers to one decimal place. 2. Prepare condensed estimated income statements and compute the invested assets for each proposal. 3. Using the Dufont formula for retum on investment, determine the profit margin, imvestment turnover, and return on investment for each proposal, Round Investrsent turnover and percentages to one decimat place. 3 more Check My Work ules remaining 3. Using the Dupont formula for return on investment, determine the profit margin, investment turnover, and return on investment for each propotal. Round investment turnover and percentages to one decimal place. 4. Which of the thice proposals would meet the required 20% return on investment? Proposal 1 Proposal 2 5. If the Electronics Division were in an industry where the profit margin could not be increased, hew much would the investment tumover have to increase to meet th president's required 20% return on imvestment? Enter your increase in investment turnover answer as a percentage of current investment turnower. Round interim calculations (including previously calculated) and final answer to one decimal place
