Question
Rooney Technologies, Inc. has three divisions. Rooney has a desired rate of return of 12.5 percent. The operating assets and income for each division are
Rooney Technologies, Inc. has three divisions. Rooney has a desired rate of return of 12.5 percent. The operating assets and income for each division are as follows:
Divisions | Operating Assets | Operating Income | |||||
Printer | $ | 670,000 | $ | 108,540 | |||
Copier | 940,000 | 100,580 | |||||
Fax | 490,000 | 66,640 | |||||
Total | $ | 2,100,000 | $ | 275,760 | |||
Rooney headquarters has $133,000 of additional cash to invest in one of its divisions. The division managers have identified investment opportunities that are expected to yield the following ROIs:
Expected ROIs for | ||
Divisions | Additional Investments | |
Printer | 14.0 | % |
Copier | 13.0 | % |
Fax | 12.0 | % |
Required
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a-1. Calculate the ROI for each division.
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a-2. Which division manager is currently producing the highest ROI?
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b. Based on ROI, which division manager would be most eager to accept the $133,000 of investment funds?
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c. Based on ROI, which division manager would be least likely to accept the $133,000 of investment funds?
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d. Which division offers the best investment opportunity for Rooney?
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g. Calculate the residual income:
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(1) At the corporate (headquarters) level before the additional investment.
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(2) At the division level before the additional investment.
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(3) At the investment level.
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(4) At the division level after the additional investment.
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