Wescott Company has three divisions: A, B, and C. The company has a hurdle rate of 8 percent. Selected operating data for the three divisions are as follows:

	Division A	Division B	Division C
Sales revenue	$ 1,205,000	$ 1,300,000	$ 1,338,000
Cost of goods sold	745,000	955,000	972,000
Miscellaneous operating expenses	84,000	72,000	73,000
Interest and taxes	68,000	61,000	61,000
Average invested assets	11,760,000	2,870,000	4,717,000

Wescott is considering an expansion project in the upcoming year that will cost $7.3 million and return $664,000 per year. The project would be implemented by only one of the three divisions.

Required:

1. Compute the ROI for each division.

2. Compute the residual income for each division.

3. Rank the divisions according to the ROI and residual income of each.

4-a. Compute the return on investment on the proposed expansion project.

4-b. Is this an acceptable project?

5. Without any additional calculations, state whether the proposed project would increase or decrease each divisions ROI.

6. Compute the new ROI and residual income for each division if the project was implemented within that division.

Compute the ROI for each division. Note: Enter your answers as a percentage rounded to two decimal places, (i.e., 0.1234 should be entered as 12.34%.)

Requirement 1

	ROI
Division A		%
Division B		%
Division C		%

Requirement 2

Compute the residual income for each division. Note: Loss amounts should be indicated by a minus sign. Enter your answers in whole dollars not in millions.

	Residual income (Loss)
Division A
Division B
Division C

Requirement 3

Rank the divisions according to the ROI and residual income of each.

	Rank
Division A	3
Division B	1
Division C	2

Requirement 4A

Compute the return on investment on the proposed expansion project. Note: Enter your answer as a percentage rounded to two decimal places, (i.e., 0.1234 should be entered as 12.34%.)

Return on Investment of Proposed Expansion Project

%

Requirement 4B

Is this an acceptable project?

Is this an acceptable project?

Yes

Requirement 5

Without any additional calculations, state whether the proposed project would increase or decrease each divisions ROI.

Division A	Increase
Division B	Decrease
Division C	Increase

Requirement 6

Compute the new ROI and residual income for each division if the project was implemented within that division. Note: Loss amounts should be entered with a minus sign. Enter your ROI percentage answers to 2 decimal places, (i.e., 0.1234 should be entered as 12.34%.). Enter your answers in whole dollars not in millions.

	ROI		Residual Income (Loss)
Division A		%
Division B		%
Division C		%