Question

Required information [The following information applies to the questions displayed below.) Megamart, a retailer of consumer goods, provides the following information on two of its departments (each considered an investment center). Investment Center Electronics Sporting goods Sales Income $ 40, 800,000 $3,060,000 17,680,000 2,210,000 Average Invested Assets $17,000,000 13,000,000 1. Compute return on investment for each department. Using return on investment, which department is most efficient at using assets to generate returns for the company? 2. Assume a target income level of 11% of average invested assets. Compute residual income for each department. Which department generated the most residual income for the company? 3. Assume the Electronics department is presented with a new investment opportunity that will yield a 15% return on investment. Should the new investment opportunity be accepted?

Answer 1

Net income Aveg Invested Assets Electronics Sporting Goods 3060000 2210000 17000000 13000000 Return on investmnet 18.00% 17.00% Electronics 1.) Return on investmnet Choose Numerator : Choose Denominator Net income Average Invested assets Electronics 3060000 17000000 Sporting Goods 2210000 13000000 Which Department is most efficient at using assets to generate returns for the Company 2.) Calculation of Residula Income (with Minimum Return in 15% ) Investement Center Electronics Sporting Goods Net income 3060000 2210000 Taeget Net income L 2550000 1950000 Residula income 510000 260000 Which Department is most efficient at Electronics using assets to generate returns for the 3) Assume a New investment with 15% Should the this Accepted ANSWER: NO ROI : operating income / operating assets Residula income: Operating income- Minimum required income