Megamart provides the following information on its two investment centers.

Investment Center	Sales	Income	Average Assets
Electronics	$ 42,000,000	$ 3,360,000	$ 16,800,000
Sporting goods	19,456,000	2,432,000	12,800,000

1. Compute return on investment for each center. Using return on investment, which center is most efficient at using assets to generate income? 2. Assume a target income of 10% of average assets. Compute residual income for each center. Which center generated the most residual income? 3. Assume the Electronics center is presented with a new investment opportunity that will yield a 14% return on investment. Should the new investment opportunity be accepted? The target return is 10%.

Required 1 Required 2 Required 3 Compute return on investment for each center. Using return on investment, which center is most efficient at using assets to generate income? Return on Investment 1 Denominator: Numerator: Income x Return on Investment Electronics $ 7 Sales 3,360,000 $ 1 2,432,000/ $ 8% 42,000,000 X = 19,456,000 X = Sporting Goods $ 13% Which center is most efficient at using assets to generate income? Sporting goods Required 1 Required 2 Required 3 Assume a target income of 10% of average assets. Compute residual income for each center. Which a most residual income? Electronics Sporting Goods Investment Center Income Less target income Residual income Which center generated the most residual income? Electronics Required 1 Required 2 Required 3 Assume t Required 1 enter is presented with a new investment opportunity that will yield a 14% return on investment. Should the count opportunity be accepted? The target return is 10%. Should the new investment opportunity be accepted?