Wescott Company has three divisions: A, B, and C. The company has a hurdle rate of...
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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 C $ 1,052,000 Sales revenue Division A $ 1,290,000 797,000 71,000 55,000 Division B $1,053,000 773,000 59,000 Cost of goods sold Miscellaneous operating expenses 764,000 60,000 Interest and taxes 48,000 48,000 Average invested assets 9,511,000 2,259,000 3,716,000 Wescott is considering an expansion project in the upcoming year that will cost $5.7 million and return $521,000 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 division's ROI. 6. Compute the new ROI and residual income for each division if the project was implemented within that division. 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 C $ 1,052,000 Sales revenue Division A $ 1,290,000 797,000 71,000 55,000 Division B $1,053,000 773,000 59,000 Cost of goods sold Miscellaneous operating expenses 764,000 60,000 Interest and taxes 48,000 48,000 Average invested assets 9,511,000 2,259,000 3,716,000 Wescott is considering an expansion project in the upcoming year that will cost $5.7 million and return $521,000 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 division's ROI. 6. Compute the new ROI and residual income for each division if the project was implemented within that division.
Expert Answer:
Answer rating: 100% (QA)
1 ROI A B C Sales 1290000 1053000 1052000 Less COGS 797000 773000 764000 LEss Miscelleanous operatin... View the full answer
Related Book For
Managerial Accounting
ISBN: 978-0078025518
2nd edition
Authors: Stacey Whitecotton, Robert Libby, Fred Phillips
Posted Date:
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