Question
The managers of Herwhno want to introduce a new product line. The financial performance of the company for the most recent year is given below:
The managers of Herwhno want to introduce a new product line. The financial performance of the company for the most recent year is given below:
Sales | 63,300,000 |
Less variable costs | 36,720,000 |
Contribution | 26,580,000 |
Less fixed expenses | 22,720,000 |
Net profit | 3,860,000 |
Divisional capital employed | 23,200,000 |
The company estimates that the required return on investment should be a minimum of 12%. Details of new product line The sales manager estimates that sales for the new product will be 420,000 units per annum if the selling price is 5.20 per unit. Variable costs are estimated to be 2.86 per unit. Fixed costs will increase by 900,000. A budget of 2,000,000 has been agreed for investment in new machinery.
A) Calculate the return on investment after the new investment is accepted. (Round your answer to 2 decimal places.)
14.1%.
22.10%.
14.8%.
15.65%.
B) Calculate residual income after the new investment is accepted
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started