Question
Longview Baskets has in its inventory 2,000 damaged baskets that cost $20,000. The baskets can be sold in their present condition for a total of
Longview Baskets has in its inventory 2,000 damaged baskets that cost $20,000. The baskets can be sold in their present condition for a total of $12,000, or repaired at a cost of $7,000 and sold for a total of $25,000. What is the opportunity cost of selling the baskets in their present condition? Would we Sell As Is or Process Further?
Assume the Air Conditioning division of the General Appliance Corporation had the following results last year (in thousands). Management's target rate of return is 12% and the weighted average cost of capital is 10%. Its effective tax rate is 35%
| Sales | $10,000,000 | ||||||||
| Operating income | 2,400,000 | ||||||||
| Total assets | 2,500,000 | ||||||||
| Current liabilities | 920,000 | ||||||||
| a) What is the division's Return on Investment (ROI)? | |||||||||
| b) What is the division's Residual Income (RI)? | |||||||||
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