Question: Austen Ceramics, a division of Monette Corporation, has an operating income of $77,000 and total assets of $440,000. The required rate of return for the

Austen Ceramics, a division of Monette Corporation, has an operating income of $77,000 and total assets of $440,000. The required rate of return

Austen Ceramics, a division of Monette Corporation, has an operating income of $77,000 and total assets of $440,000. The required rate of return for the company is 9%. The company is evaluating whether it should use return on investment (ROI) or residual income (RI) as a measurement of performance for its division managers. The manager of Austen Ceramics has the opportunity to undertake a new project that will require an investment of $110,000. This investment would earn $13,200 for the company Read the requirements Requirement 1. What is the original return on investment (RON for Austen Ceramics (before making any additional investment)? First determine the formula to calculate the ROI. Operating income Total assets = ROI (Enter the percentage to two decimal places.) 17.5 % The original return on investment (ROI) for Austen Ceramics is Requirement 2. What would the ROI be for Austen Ceramics if this investment opportunity were undertaken? Would the manager of the Austen Ceramics division want to make this investment if she were evaluated based on ROI? Why or why not? (Enter the percentage to two decimal places.) If this investment opportunity were undertaken, the ROI would be % 1 - Requirements 1. What is the original return on investment (ROI) for Austen Ceramics (before making any additional investment)? 2. What would the ROI be for Austen Ceramics if this investment opportunity were undertaken? Would the manager of the Austen Ceramics division want to make this investment if she were evaluated based on ROI? Why or why not? 3. What is the ROI of the investment opportunity? Would the investment be desirable from the standpoint of Monette Corporation? Why or why not? 4. What would the residual income (RI) be for Austen Ceramics if this investment opportunity were to be undertaken? Would the manager of the Austen Ceramics division want to make this investment if she were evaluated based on RI? Why or why not? 5. What is the Rl of the investment opportunity? Would the investment be desirable from the standpoint of Monette Corporation? Why or why not? 6. Which performance measurement method, ROI or RI, promotes goal congruence? Why

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock blur-text-image

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Accounting Questions!

Austen Ceramics, a division of Gammaro Corporation, has an operating income of $63,000 and total assets of $420,000. The required rate of return for the company is 10%. The company is evaluating...

Austen Ceramics, a division of Samson Corporation, has an operating income of $78,000 and total assets of $416,000. The required rate of return for the company is 9%. The company is evaluating...

Austen Ceramics, a division of LaChut Corporation, has an operating income of $85,000 and total assets of $425,000. The required rate of return for the company is 9%. The company is evaluating...

in percent and in dollars ?? Preston Ceramics, a division of Monette Corporation, has an operating income of $85,000 and total assets of $425,000. The required rate of return for the company is 9%....

Austen Ceramics, a division of Gammaro Corporation, has an operating income of $ 6 3 , 0 0 0 and total assets of $ 4 2 0 , 0 0 0 . The required rate of return for the company is 9 % . The company is...

Austen Ceramics, a division of Piper Corporation, has an operating income of $78,000 and total assets of $416,000. The required rate of return for the company is 13%. The company is evaluating...

Austen Ceramics, a division of Berkner Corporation, has an operating income of $78,000 and total assets of $416,000. The required rate of return for the company is 14%. The company la evaluating...

Part 1 of 12 O Points: 0 of 1 Save Mcknight Ceramics, a division of Monette Corporation, has an operating income of $77,000 and total assets of $440,000. The required rate of return for the company...

Austen Ceramics, a division of Sweeney Corporation, has an operating income of $82,000 and total assets of $410,000. The required rate of return for the company is 10%. The company is evaluating...

Osborne Ceramics, a division of Monette Corporation, has an operating income of $81,000 and total assets of $450,000. The required rate of return for the company is 12%. The company is evaluating...

Presentation Graphics prepares slides and other aids for individuals making presentations. It estimates it can save $42,000 a year in cash operating costs for the next five years if it buys a...

Div Show that the length of an endles chain which will hang over so as to be in content with a circular bully of racties a love third of circunference of pally is a [by (PNB) + 2^] two 3

Use polynomial long division to determine if ( x - 1 ) is a factor of 3 x ^ ( 4 ) - 2 x ^ ( 2 ) - x + 4 7 if it is not, what is the remainder?

Nathan is conducting a portfolio analysis for his company. Which of the following activities would this involve? A ) evaluating the attractiveness of an SBU's market and the strength of its position...

How clear are you about a topic for your project? Who do you need to discuss your ideas with to decide about the feasibility of the project? (Chapter

What resources or expertise and advice are available to you from your project supervisor? How can you make best use of these resources?

What skills and competences have you already developed that you can utilise in the process of undertaking your project?