Megamart, a retailer of consumer goods, provides the following information on two of its departments (each considered an investment center).

Investment Center		Sales		Net Income	Average Invested Assets
Electronics	$	9,800,000	$	769,500	$	4,050,000
Sporting goods		7,500,000		720,000		4,500,000

1-a.	Compute return on investment for each department.

1-b.

Using return on investment, which department is most efficient at using assets to generate returns for the company?

	Sporting goods
	Electronics

2-a.	Assume a target income level of 12.4% of average invested assets. Compute residual income for each department.

2-b.

Which department generated the most residual income for the company?

	Sporting goods
	Electronics

3.

Assume the Electronics department is presented with a new investment opportunity that will yield a 14.4% return on investment. Should the new investment opportunity be accepted?

	No, the new investment opportunity should not be accepted
	Yes, the new investment opportunity should be accepted