Question
The Art Division of Marvel Corporation, which has an income of $11,250 and an invested capital of $75,000 is studying an investment opportunity that will
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The Art Division of Marvel Corporation, which has an income of $11,250 and an invested capital of $75,000 is studying an investment opportunity that will cost $35,000 and yield a profit of $4,550. Assuming the company uses an imputed interest rate of 12%, which of the following statements is true?
a. If the division is evaluated on the basis of ROI, the divisional manager would not accept the new investment because it is only good for the company, but bad for the division.
b. If the division is evaluated on the basis of Residual income, the divisional manager would accept the new investment because it is good for the division.
c. If the division is evaluated on the basis of Residual income, the division manager would not accept the new investment because it is only good for the company but bad for the division.
d. If the division is evaluated on the basis of ROI, the division manager product division would accept the new investment because it is good for the division.
e. Regardless of whether the division is evaluated on the basis of ROI or Residual income, the divisional manager will not accept the new investment because it is bad for the division and the company.
The Art Division of Marvel Corporation, which has an income of $11,250 and an invested capital of $75,000 is studying an investment opportunity that will cost $35,000 and yield a profit of $4,550. Assuming the company uses an imputed interest rate of 12%, which of the following statements is true?
a. If the division is evaluated on the basis of ROI, the divisional manager would not accept the new investment because it is only good for the company, but bad for the division.
b. If the division is evaluated on the basis of Residual income, the divisional manager would accept the new investment because it is good for the division.
c. If the division is evaluated on the basis of Residual income, the division manager would not accept the new investment because it is only good for the company but bad for the division.
d. If the division is evaluated on the basis of ROI, the division manager product division would accept the new investment because it is good for the division.
e. Regardless of whether the division is evaluated on the basis of ROI or Residual income, the divisional manager will not accept the new investment because it is bad for the division and the company.
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Income Tax Fundamentals 2013
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
31st Edition
1111972516, 978-1285586618, 1285586611, 978-1285613109, 978-1111972516
