Question

11.01 - Need help answering the incorrect answers: B & C for each problems and the ROI on the Turbocharger.
Return on Investment for Multiple Investments, Residual Income The manager of a division that produces add-on products for the automobile industry has just been presented the opportunity to invest in two independent projects. The first is an air conditioner for the back seats of vans and minivans. The second is a turbocharger. Without the investments, the division will have average assets for the coming year of $28.9 million and expected operating income of $4.335 million. The outlay required for each investment and the expected operating incomes are as follows: Air Conditioner Turbocharger Outlay $750,000 $540,000 Operating income 90,000 82,080 Required: 1. Compute the ROI for each investment project. Round to the nearest whole percent. Air conditioner, ROI 12 % 21 x % Turbocharger, ROI 2. Compute the budgeted divisional ROI for each of the following four alternatives. Round to two decimal places. a. The air conditioner investment is made. b. The turbocharger investment is made. 14.92 % 15.11 x % 15.04 x % 15.00 % c. Both investments are made. d. Neither additional investment is made. 3. Conceptual Connection: Assuming that divisional managers are evaluated and rewarded on the basis of ROI performance, which alternative do you think the divisional manager will choose? The manager will choose the turbocharger, but not the air conditioner. 4. Conceptual Connection: Suppose that the company sets a minimum required rate of return equal to 14%. Calculate the residual income for each of the following four alternatives: a. The air conditioner investment is made. $ 274,000 b. The turbocharger investment is made. 327,480 x c. Both investments are made. $ 312,480 x d. Neither additional investment is made. की 289,000

Answer 1

Please find the answer below. all the answers are given and the required answers are marked in green.

	Original	AC	Turbo	Original plus AC	Original plus turbo charger	Original plus both
assets	28,900,000	750000	540,000	29,650,000	29,440,000	30,190,000
income	4,335,000	90000	82080	4,425,000	4,417,080	4,507,080
ROI (Income / Assets X 100)		12.00%	15.20%	14.92%	15.00%	14.93%
Minimum required rate if return @ 14 % X assets	4,046,000			4,151,000	4,121,600	4,226,600
income above minus minimum return required	289,000			274,000	295,480	280,480

Minimum required rate if return @ 10 % X assets	2,890,000			2,965,000	2,944,000	3,019,000
income above minus minimum return required	1,445,000			1,460,000	1,473,080	1,488,080