The Gaming Division of Nevada Corporation had income of $750,000 and total assets of $3 million in

Question:

The Gaming Division of Nevada had income of $750,000 and total assets of $3 million in the past year. The figures are expected to be similar next year. The manager of the Gaming Division has an opportunity to purchase some new gambling machines for $300,000. He concludes that the new machines would increase annual operating profit by $55,000.
Required:
1. Calculate the current ROI and the on the proposed investment.
2. Calculate the Gaming Division’s current residual income and the expected residual income on the proposed investment. (Assume that the division’s minimum accepted rate of return is 17%.)
3. Should the new machines be purchased:
a. If the division uses the ROI method?
b. If the division uses the residual income method?

Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may... Expected Return
The expected return is the profit or loss an investor anticipates on an investment that has known or anticipated rates of return (RoR). It is calculated by multiplying potential outcomes by the chances of them occurring and then totaling these...