Question

M10-10 (Algo) Impact of New Investment on ROI, Residual Income [LO 10-4, 10-5) The Western Division of Claremont Company had net operating income of $149,000 and average invested assets of $550,000 Claremont has a required rate of return of 13.00 percent. Western has an opportunity to increase operating income by $45,000 with a $100,000 investment in assets. Compute Western Division's return on investment and residual income currently and if it undertakes the project. (Enter your ROI answers as a percentage rounded to two decimal places, (i.e., 0.1234 should be entered as 12.34%). Round your Residual Income (Loss) answers to the nearest whole dollar.) Current Proposed Project Return on Investment (ROI) Residual Income (Loss) < Prev 2 of 4 ! Next > earch

Answer 1

Answer is given below

Proposed Project 29.85% $109,500 Current 27.09% $77,500 Return on Investment Residual Income Return on investment Current ROI Proposed Project ROI Operating Income Average Assets $149,000 $550,000 27.09% $194,000 $650,000 29.85% Residual income Current $149,000 Proposed Project $194,000 Operating Income Less: Average Assets X 13% Residual Income $71,500 $77,500 $84,500 $109,500