The Bottle Labelling Division of Crush Drink Ltd currently has a capital employed of 100,000 and...
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The Bottle Labelling Division of Crush Drink Ltd currently has a capital employed of ¢100,000 and earns an annual profit after depreciation of 18,000. The divisional manager is considering an investment of $10,000 in an asset which will have a ten-year life with no residual value and will earn a constant annual profit after depreciation of 1,600. The cost of capital is 15%. Required: Calculate the following and comment on the results a. The return on divisional investment before and after the new investment b. The divisional residual income before and after the new investment c. Compare and contrast the use of residual income and return on investment in divisional performance measurement stating the advantages The Bottle Labelling Division of Crush Drink Ltd currently has a capital employed of ¢100,000 and earns an annual profit after depreciation of 18,000. The divisional manager is considering an investment of $10,000 in an asset which will have a ten-year life with no residual value and will earn a constant annual profit after depreciation of 1,600. The cost of capital is 15%. Required: Calculate the following and comment on the results a. The return on divisional investment before and after the new investment b. The divisional residual income before and after the new investment c. Compare and contrast the use of residual income and return on investment in divisional performance measurement stating the advantages
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a Return on Divisional Investment The return on divisional investment is calculated using the following formula Return on Investment ROI Profit After ... View the full answer
Related Book For
Management Accounting
ISBN: 9780730369387
4th Edition
Authors: Leslie G. Eldenburg, Albie Brooks, Judy Oliver, Gillian Vesty, Rodney Dormer, Vijaya Murthy, Nick Pawsey
Posted Date:
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