The wholesale department of Rosehill Company currently earns an ROI of 15%. The department manager is considering
Question:
The wholesale department of Rosehill Company currently earns an ROI of 15%. The department manager is considering a new project, which requires a $100,000 investment in operating assets and generates a net operating income of $13,500. Assume that the company’s minimum required rate of return is 12%. Which of the following statement is true?
Multiple Choice
If the manager is evaluated based on ROI, she will make the new investment because it increases the department’s ROI by 1.5%.
If the manager is evaluated based on ROI, she will make the new investment because it generates an ROI that is 1.5% greater than the company’s minimum required rate of return.
If the manager is evaluated based on residual income, she will not make the new investment because it decreases the department’s residual income by $1,500.
If the manager is evaluated based on residual income, she will make the new investment because it increases the department’s residual income by $1,500.
Essentials of Business Analytics
ISBN: 978-1305627734
2nd edition
Authors: Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson