Question
ROI and Residual Income: Impact of a New Investment The Stallion Division of Motortown Motors had an operating income of $805,000 and net assets of
ROI and Residual Income: Impact of a New Investment The Stallion Division of Motortown Motors had an operating income of $805,000 and net assets of $3,500,000. Motortown Motors has a target rate of return of 20%.
(a) Compute the return on investment. (Round your answer to three decimal places.) Answer
(b) Compute the residual income. $Answer
(c) The Stallion Division has an opportunity to increase operating income by $165,000 with an $800,000 investment in assets.
1. Compute the Stallion Divisions return on investment if the project is undertaken. (Round your answer to three decimal places.) Answer
2. Compute the Stallion Divisions residual income if the project is undertaken. Use a negative sign with your answer results in a residual loss. $Answer
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