Preston Ceramics, a division of Gammaro Corporation, has an operating income of $85,000 and total assets of $425,000. The required rate of return for the company is 13%. The company is evaluating whether it should use return on investment (ROI) or residual income (RI) as a measurement of performance for its division managers. The manager of Preston Ceramics has the opportunity to undertake a new project that will require an investment of $175,000. This investment would eam for the company Read the requirements Requirement 1. What is the original return on investment (ROI) for Preston Ceramics (before making any additional investmenty? First determine the formula to calculate the ROI Operating income Total assets = ROI (Enter the percentage to two decimal places.) The original retum on investment (ROI) for Preston Ceramics is 20 %. Requirement 2. What would the ROI be for Preston Ceramics if this investment opportunity were undertaken? Would the manager of the Preston Ceramics division want to make this investment if she were evaluated based on ROI? Why or why not? (Enter the percentage to two decimal places.) If this investment opportunity were undertaken, the ROI would be Preston Ceramics, a division of Gammaro Corporation, has an operating income of $85,000 and total assets of $425,000. The required rate of return for the company is 13%. The company is evaluating whether it should use return on investment (ROI) or residual income (RI) as a measurement of performance for its division managers. The manager of Preston Ceramics has the opportunity to undertake a new project that will require an investment of $175,000. This investment would sam for the company Read the requirements Requirement 1. What is the original return on investment (RO Requirements First determine the formula to calculate the ROI. Operating income Total assets (Enter the percentage to two decimal places.) The original retum on Investment (ROI) for Preston Ceramics nvestment if she were evaluated based on ROI? Why or why Requirement 2. What would the ROI be for Preston Ceramic not? (Enter the percentage to two decimal places.) If this investment opportunity were undertaken, the ROI would 1. What is the original retum on investment (ROI) for Preston Ceramics (before making any additional investment)? 2. What would the ROI be for Preston Ceramics if this investment opportunity were undertaken? Would the manager of the Preston Ceramics division want to make this investment if she were evaluated based on ROI? Why or why not? 3. What is the ROI of the investment opportunity? Would the investment be desirable from the standpoint of Gammaro Corporation? Why or why not? 4. What would the residual income (RI) be for Preston Ceramics if this investment opportunity were to be undertaken? Would the manager of the Preston Ceramics division want to make this investment if she were evaluated based on RI? Why or why not? 5. What is the Rl of the investment opportunity? Would the investment be desirable from the standpoint of Gammaro Corporation? Why or why not? 6. Which performance measurement method, ROI or RI, promotes goal congruence? Why? Print Done
