Question

The following is partial information for Charleston Company’s most recent year of operation. It manufactures lawn mowers and categorizes its operations into two divisions: Bermuda and Midiron.



Required:
1. Without making any calculations, determine whether each division’s return on investment is above or below Charleston’s hurdle rate. How can you tell?
2. Determine the missing amounts in the preceding table.
3. What is Charleston’s hurdle rate?
4. Suppose Charleston has the opportunity to invest additional assets to help expand the company’s market share. The expansion would require an average investment of $2,800,000 and would generate $140,000 in additional income. From Charleston’s perspective, is this a viable investment? Why or why not?
5. Suppose the two divisions would equally share the investment and profits from the expansion project. If return on investment is used to evaluate performance, what will each division manager think about the proposed project?
6. In requirement 5, will either manager’s preference change if residual income is used to mea-sure division performance? Explain youranswer.


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  • CreatedFebruary 27, 2015
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