PA10-2 (Static) Calculating Unknowns, Predicting Relationship among Return on Investment, Residual Income, Hurdle Rates [LO 10-4, 10-5) The following is partial information for Charleston Company's most recent year of operation. It manufactures lawn mowers and categorizes its operations into two divisions: Bermuda and Midiron. Sales revenue Average invested assets Net operating income Profit margin Investment turnover Return on investment Residual income Bermuda Division ? $2,500,000 $ 160,000 20% > ? 40,000 Midiron Division $ 600,000 ? $ 150,000 ? 0.16 $ $ (30,000) Required: 1. Without making any calculations, determine whether each division's return on investment is above or below Charleston's hurdle rate. 2. Determine the missing amounts in the preceding table. 3. What is Charleston's hurdle rate? 4-a. Suppose Charleston has the opportunity to invest additional assets to help expand the company's market share. The expansion would require an average investment of $2,800,000 and would generate $140,000 in additional income. Calculate the return on investment of the proposed expansion. 4-b. From Charleston's perspective, Is this a viable investment? 5. Suppose the two divisions would equally share the investment and profits from the expansion project. If return on investment is used to evaluate performance, what will each division manager think about the proposed project? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Required 5 Without making any calculations, determine whether each division's return on investment is above or below Charleston's hurdle rate The Bermuda Division's return on investment is The Midiron Division's return on investment is Charleston's hurdle rate Charleston's hurdle rate Bermuda Division ? Sales revenue Average invested assets Net operating income Profit margin Investment turnover Return on investment Residual income $2,500,000 $ 160,000 zek ? ? $ 40,000 Midiron Division $ 600,000 ? $ 150,000 ? 0.16 $ (30,000) Required: 1. Without making any calculations, determine whether each division's return on investment is above or below Charleston's hurdle rate. 2. Determine the missing amounts in the preceding table. 3. What is Charleston's hurdle rate? 4-a. Suppose Charleston has the opportunity to invest additional assets to help expand the company's market share. The expansion would require an average investment of $2,800,000 and would generate $140,000 in additional income. Calculate the return on investment of the proposed expansion 4-b. From Charleston's perspective, is this a viable investment? 5. Suppose the two divisions would equally share the investment and profits from the expansion project. If return on investment is used to evaluate performance, what will each division manager think about the proposed project? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Required 5 Determine the missing amounts in the following table. (Round your ROI percentage answers to 1 decimal place, (1.e., 0.123 should be entered as 12.3%). Round investment turnover to 2 decimal places.) Bermuda Midiron Division Division Sales revenue $ 600,000 Average invested assets $ 2,500,000 Net operating income $ 160.000 $ 150,000 Profit margin 20% % Investment turnover 0.16 Return on investment % % Residual income (Loss) S 40.000 $ (30,000) Sales revenue Average invested assets Net operating income Profit margin Investment turnover Return on investment Residual income Bermuda Division 2 $2,500,000 $ 160,000 20% > 2 $ 40,000 Midiron Division $ 600,000 2 $ 150,000 ? 0.16 > $ (30,000) Required: 1. Without making any calculations, determine whether each division's return on investment is above or below Charleston's hurdle 2. Determine the missing amounts in the preceding table. 3. What is Charleston's hurdle rate? 4-a. Suppose Charleston has the opportunity to invest additional assets to help expand the company's market share. The expansic would require an average investment of $2,800,000 and would generate $140,000 in additional income. Calculate the return on investment of the proposed expansion 4-b. From Charleston's perspective, is this a viable investment? 5. Suppose the two divisions would equally share the investment and profits from the expansion project. If return on investment is used to evaluate performance, what will each division manager think about the proposed project? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Required 5 What is Charleston's hurdle rate? (Round your answers to 1 decimal place, (i.e. 0.123 should be entered as 12.3%.)) Charleston's Hurdle Rate Bermuda Division Midiron Division 828 Sales revenue Average invested assets Net operating income Profit margin Investment turnover Return on investment Residual income Bermuda Division ? $2,500,000 $ 160,000 20% ? ? $ 40,000 Midiron Division $ 600,000 ? $ 150,000 ? 0.16 $ (30,000) Required: 1. Without making any calculations, determine whether each division's return on investment is above or below Charleston's hurdle rate. 2. Determine the missing amounts in the preceding table. 3. What is Charleston's hurdle rate? 4-0. Suppose Charleston has the opportunity to invest additional assets to help expand the company's market share. The expansion would require an average investment of $2,800,000 and would generate $140,000 in additional income Calculate the return on investment of the proposed expansion 4-b. From Charleston's perspective, is this a viable investment? 5. Suppose the two divisions would equally share the investment and profits from the expansion project. If return on investment is used to evaluate performance, what will each division manager think about the proposed project? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Required 5 4-a. Suppose Charleston has the opportunity to invest additional assets to help expand the company's market share. The expansion would require an average investment of $2,800,000 and would generate $140,000 in additional income. Calculate the return on investment of the proposed expansion. 4-b. From Charleston's perspective, is this a viable investment? Show less 9 4-a. Return on Investment 4-b. Is this a viable investment? Sales revenue Average invested assets Net operating income Profit margin Investment turnover Return on investment Residual income Bermuda Division ? $2,500,000 $ 160,000 20% 2 ? $ 40,000 Midiron Division $ 600,000 ? $ 150,000 ? 0.16 ? $ (30,000) Required: 1. Without making any calculations, determine whether each division's return on investment is above or below Charleston's hurdle rate. 2. Determine the missing amounts in the preceding table. 3. What is Charleston's hurdle rate? 4-a. Suppose Charleston has the opportunity to invest additional assets to help expand the company's market share. The expansion would require an average investment of $2,800,000 and would generate $140,000 in additional income. Calculate the return on investment of the proposed expansion 4-b. From Charleston's perspective, is this a viable investment? 5. Suppose the two divisions would equally share the investment and profits from the expansion project. If return on investment is used to evaluate performance, what will each division manager think about the proposed project? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Required Suppose the two divisions would equally share the investment and profits from the expansion project. If return on investment is used to evaluate performance, what will each division manager think about the proposed project? The Midiron Division The Bermuda Division the investment the investment
