The Empire Hotel is a full-service hotel in a large city. Empire is organized into three departments
Question:
Instructions
a. Compute the ROI for each department. Use the DuPont method to analyze the return on sales and capital turnover.
b. Assume the Health Spa is considering installing new exercise equipment. Upon investigating, the manager of the division finds that the equipment would cost $60,000 and that operating earnings would increase by $10,800 per year as a result of the new equipment. What is the ROI of the investment in the new exercise equipment? What impact does the investment in the exercise equipment have on the Health Spa's ROI? Would the manager of the Health Spa be motivated to undertake such an investment?
c. Compute the residual income for each department if the minimum required return for the Empire Hotel is 15 percent. What would be the impact of the investment in (b) on the Health Spa's residual income?
Step by Step Answer:
Financial and Managerial Accounting the basis for business decisions
ISBN: 978-1259692406
18th edition
Authors: Jan Williams, Susan Haka, Mark Bettner, Joseph Carcello