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the monarch division

Exercise 15-17 Comparing return on investment with residual income LO 15-6, 15-7 The Monarch Division of Allgood Corporation
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Answer #1
Current Residual Income
Present Income $         10,92,000
($8400000*13%)
Less:
Target ROI $           7,56,000
($8400000*9%)
Therefore, Residual Income $           3,36,000
Revised Residual Income
Revised Income $   17,08,000.00
($8400000+5600000)*12.20%
Less:
Target ROI $         12,60,000
($8400000+5600000)*9%
Therefore, Residual Income $           4,48,000
Since there is an increase in residual income
Monarch Division should make investment YES
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