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Question 1 (10 marks) The Quintessential Cookie Company, owned by Ms. Chip, consists of several divisions. The Chocolate Chip Cookie Division has an investment of
Question 1 (10 marks) The Quintessential Cookie Company, owned by Ms. Chip, consists of several divisions. The Chocolate Chip Cookie Division has an investment of $1,700,000 and profits are expected to be $125,000 this year. Ms. Chip has the opportunity to invest in a new piece of machinery that will allow the company to produce a gluten-free cookie that the market is demanding. The investment will yield a profit of $129,000 from an additional investment of $1,084,000. The Quintessential Cookie Company accepts projects if the ROI exceeds the cost of capital, which is 9%. Required: Calculate The Quintessential Cookie Company's current Return on Investment (ROI) and Residual Income (RI). (2 marks) i) ii) Calculate The Quintessential Cookie Company's Return on Investment (ROI) and Residual Income (RI) for the additional investment only. (2 marks) i) Calculate The Quintessential Cookie Company's Return on Investment (ROI) and Residual Income (RI) after the investment. (2 marks) iv) Why might Ms. Chip prefer to use Residual Income as a measure as opposed to Return on Investment? (2 marks) v) Should Ms. Chip proceed with the proposed investment? (2 marks)
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