Data for Manufacturing Division of a company is as follows: Manufacturing Division Division Current ROI 25% Projected ROI on new Investment Project 17% Corporate
Data for Manufacturing Division of a company is as follows: Manufacturing Division Division Current ROI 25% Projected ROI on new Investment Project 17% Corporate Average ROI 15% Investment Required in New Project Current Investment $1,000,000 $1,000,000 Required: 1. What is the Residual Income for the Project [Hint Use Average Corporate ROI as Required Rate of Return]? {Ans: Residual Income(RI), since RI = $20,000} 2. What would be the Division ROI if the company did decide to accept the new project? {Ans: ROI = 21%} 3. For an investment center, which measure would be more suitable to motivate the manager to make the investment in the project?
Step by Step Solution
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Step: 1
QSN1 To calculate the residual income for the project well use the formula ResidualIncomeOperatingIncomefromProjectRequiredRateofReturnInvestmentRequiredResidualIncomeOperatingIncomefromProjectRequire...See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
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