Question

Required information Use the following information for the Exercises below. 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 $ 40,500,000 $2,916,000 20,740,000 2,074,000 Average Invested Assets $16,200,000 12,200,000 Exercise 22-10 Computing return on investment and residual income; investing decision LO A1 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? Complete this question by entering your answers in the tabs below.

Answer 1

Requirement1 Retuern On Investment Choose Numerator / Choose Denominator = Return On Investment Income / Avergae Invested Assets = Return On Investment Electronics 2916000 / 16200000 = 18.00% Sporting Goods 2074000 / 12200000 = 17.00% Requirement 2 Investment Centre Net Income Target Income Electronic 2916000 1782000 (16200000*11%) Sporting Goods 2074000 1342000 (12200000*11%) 1134000 732000 Rsidual Income Most Efficient Department Electronics Requirement 3 Yes Because because its return higher than target income that means 11%.