Required information

Use the following information for the Exercises below. (Algo)

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[The following information applies to the questions displayed below.] Megamart provides the following information on its two investment centers.

Investment Center	Sales	Income	Average Assets
Electronics	$ 32,600,000	$ 2,771,000	$ 16,300,000
Sporting goods	15,744,000	1,968,000	12,300,000

Exercise 9-10 (Algo) Computing return on investment and residual income; investing decision LO A1

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 12% 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 12%.

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
	Numerator:	/	Denominator:
		/		=	Return on Investment
Electronics		/		=
Sporting Goods		/		=
Which center is most efficient at using assets to generate income?

• Required

Assume a target income of 12% of average assets. Compute residual income for each center. Which center generated the most residual income?

Investment Center	Electronics	Sporting Goods
Income
Less target income
Residual income
Which center generated the most residual income?