Question

Wescott Company has three divisions: A, B, and C. The company has a hurdle rate of 8 percent. Selected operating data for the three divisions are as follows:

	Division A		Division B		Division C
Sales revenue	$	1,215,000	$	1,262,000	$	1,294,000
Cost of goods sold		751,000		927,000		940,000
Miscellaneous operating expenses		82,000		70,000		71,000
Interest and taxes		66,000		59,000		59,000
Average invested assets		11,414,000		2,776,000		4,563,000

Wescott is considering an expansion project in the upcoming year that will cost $7.1 million and return $642,000 per year. The project would be implemented by only one of the three divisions.


Required:
1. Compute the ROI for each division. (Do not round your intermediate calculations. Round your percentage answer to 2 decimal places, (i.e. 0.1234 should be entered as 12.34%.))



2. Compute the residual income for each division. (Loss amounts should be indicated by a minus sign.)



3. Rank the divisions according to the ROI and residual income of each.



4-a. Compute the return on investment on the proposed expansion project. (Round your percentage answer to 2 decimal places, (i.e. 0.1234 should be entered as 12.34%.))



4-b. Is this an acceptable project?

	Yes
	No

5. Without any additional calculations, state whether the proposed project would increase or decrease each division’s ROI.



6. Compute the new ROI and residual income for each division if the project was implemented within that division. (Loss amounts should be entered with a minus sign. Enter your ROI percentage answers to 2 decimal places, (i.e., 0.1234 should be entered as 12.34%.))

2.The following table lists several metrics from the Global Reporting Initiatives’ (GRI) sustainability reporting standards and other industry sources:

For each metric, classify it based on its impact on the triple bottom line (People, Profit, or Planet) and indicate which balanced scorecard perspective it is most likely to fall within (Financial, Customer, Internal Business, Learning and Growth, or Society/Community). You can use more than one category when appropriate.

The first metric is shown as an example.

Answer 1

	Division A	Division B	Division C
Sales revenue	$ 1,215,000	$   1,262,000	$ 1,294,000
Cost of goods sold	$    751,000	$      927,000	$     940,000
Miscellaneous operating expenses	$      82,000	$       70,000	$      71,000
Average invested assets	$11,414,000	$   2,776,000	$ 4,563,000
Net operating income (Sales revenue-COGS-Misc. op. expenses)	$      382,000	$        265,000	$       283,000
ROI = NOI/Average invested assets (Answer)	3.35%	9.55%	6.20%
NOI	$      382,000	$        265,000	$       283,000
Capital cost at 8% on average assets	$      913120	$        222080	$ 365040
Residual income (Answer)	$    (531120)	$           42920	$       (82040)

3.

Div A	3
Div B	1
Div C	2

4a.

ROI on proposed expansion = (Return / Cost) × 100 = = (642,000 / 7,100,000) × 100= = 9.04 %

                              

4b.

This is an acceptable project.

5. Division A = increase

Division B = decrease

Division C = increase

6.

Average invested assets	$18,514,000	$ 9,876,000	$ 11,663,000
Net operating income	$ 1,024,000	$ 907,000	$ 925,000
ROI = NOI/Average invested assets (Answer)	5.53%	9.18%	7.93%