The following is partial information for Charleston Companys most recent year of operation. It manufactures lawn mowers and categorizes its operations into two divisions: Bermuda and Midiron.

Bermuda Division

Midiron Division

Sales revenue

?

$

600,000

Average invested assets

$

2,500,000

?

Net Operating income

$

160,000

$

150,000

Profit margin

20

%

?

Investment turnover

?

0.16

Return on investment

?

?

Residual income

$

40,000

$

(30,000

)

1. Without making any calculations, determine whether each divisions return on investment is above or below Charlestons hurdle rate.

The Bermuda Divisions return on investment is		Charlestons hurdle rate
The Midiron Divisions return on investment is		Charlestons hurdle rate

2. Determine the missing amounts in the preceding table. (Round your ROI percentage answers to 1 decimal place, (i.e., 0.123 should be entered as 12.3%). Round investment turnover to 2 decimal places.)

	Bermuda Division		Midiron Division
Sales revenue			$600,000
Average invested assets	$2,500,000
Net operating income	$160,000		$150,000
Profit margin	20	%		%
Investment turnover			0.16
Return on investment		%		%
Residual income (Loss)	$40,000		$(30,000)

3. What is Charlestons hurdle rate? (Round your answer to 1 decimal place, (i.e. 0.123 should be entered as 12.3%.))

Charlestons Hurdle Rate		%

4-a. Suppose Charleston has the opportunity to invest additional assets to help expand the companys market share. The expansion would require an average investment of $2,800,000 and would generate $140,000 in additional income. Calculate the return on investment of the proposed expansion.

Return on Investment

%

4-b. From Charlestons perspective, is this a viable investment?

	No
	Yes

5. Suppose the two divisions would equally share the investment and profits from the expansion project. If return on investment is used to evaluate performance, what will each division manager think about the proposed project?

The Midiron Division		the investment.
The Bermuda Division		the investment.