Question
Return on Investment and Investment Decisions Leslie Blandings, division manager of Audiotech Inc., was debating the merits of a new producta weather radio that would
Return on Investment and Investment Decisions
Leslie Blandings, division manager of Audiotech Inc., was debating the merits of a new producta weather radio that would put out a warning if the county in which the listener lived were under a severe thunderstorm or tornado alert.
The budgeted income of the division was $775,000 with operating assets of $3,625,000. The proposed investment would add income of $640,000 and would require an additional investment in equipment of $4,000,000. The minimum required return on investment for the company is 13%.
Required:
1. Compute the ROI of the following (round to the nearest whole percent):
a. The division if the radio project is not undertaken. | % |
b. The radio project alone. | % |
c. The division if the radio project is undertaken. | % |
2. Compute the residual income of the following:
a. The division if the radio project is not undertaken. | $ |
b. The radio project alone. | $ |
c. The division if the radio project is undertaken. | $ |
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