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The manager of a division that produces add-on products for the automobile industry has just been presented the opportunity to invest in two independent projects.
The manager of a division that produces add-on products for the automobile industry has just been presented the opportunity to invest in two independent projects. The first is an air conditioner for the back seats of vans and minivans. The second is a turbocharger. Without the investments, the division will have average assets for the coming year of $28.9 million and expected operating income of $4.335 million. The outlay for each investment and the expected operating income are as follows:
ROI - RI - EVA The manager of a division that produces add-on products for the automobile industry has just been presented the opportunity to invest in two independent projects. The first is an air conditioner for the back seats of vans and minivans. The second is a turbocharger. Without the investments, the division will have average assets for the coming year of $28.9 million and expected operating income of $4.335 million. The outlay required for each investment and the expected operating incomes are as follows: Air Conditioner Turbo Charger Outlay $750,000 $540,000 Operating Income $ 90,000 $ 82,080 (Note: Round all numbers to two decimal places.) Required: 1. Compute the ROI, RI and EVA for each investment project. (Assumptions: Minimum Rate of Return 7%, Cost of Capital 10%, tax rate 5%) 2. Compute the budgeted divisional ROI, RI and EVA for each of the following four alternatives: a. The air conditioner investment is made. 7 8 29 b. The turbocharger investment is made Air Conditioner Turbo Charger
Outlay $ 750,000 $ 540,000
Op. Income $ 90,000 $ 82,080
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