Question

Exercise 9-12A Comparing return on investment with residual income LO 9-2, 9-3 The Monarch Division of Allgood Corporation ha

0 0
Add a comment Improve this question Transcribed image text
Answer #1

Answer

  • Requirement [a]

Current Investment

$7,500,000

Net Operating income at 11%

$825,000

Current required ROI at 7%

$525,000

Current Residual Income

$300,000

New residual Income

Current

Additional

TOTAL NEW

Current Investment

$7,500,000

$4,500,000

$12,000,000

Net Operating income at 11%

$825,000

$405,000

$1,230,000

Current required ROI at 7%

$525,000

$315,000

$840,000

Current Residual Income

$300,000

$90,000

$390,000 ANSWER

  • Requirement [b]
    Yes, Division should make the investment as Residual income is increasing.
Add a comment
Know the answer?
Add Answer to:
Exercise 9-12A Comparing return on investment with residual income LO 9-2, 9-3 The Monarch Division of...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions
  • Exercise 15-17 Comparing return on investment with residual income LO 15-6, 15-7 The Monarch Division of...

    Exercise 15-17 Comparing return on investment with residual income LO 15-6, 15-7 The Monarch Division of Allgood Corporation has a current ROI of 11 percent. The company target ROI is 7 percent. The Monarch Division has an opportunity to invest $4,900,000 at 9 percent but is reluctant to do so because its ROI will fall to 10.30 percent. The present investment base for the division is $9,100,000. Required a. Calculate the current residual income and the residual income with the...

  • the monarch division Exercise 15-17 Comparing return on investment with residual income LO 15-6, 15-7 The...

    the monarch division Exercise 15-17 Comparing return on investment with residual income LO 15-6, 15-7 The Monarch Division of Allgood Corporation has a current ROI of 13 percent. The company target ROI is 9 percent. The Monarch Division has an opportunity to invest $5,600,000 at 11 percent but is reluctant to do so because its ROI will fall to 12 20 percent. The present investment base for the division is $8.400,000. Required a. Calculate the current residual income and the...

  • Problem 15-23 Comparing return on investment and residual income Helena Corporation operates three investment centers. The...

    Problem 15-23 Comparing return on investment and residual income Helena Corporation operates three investment centers. The following financial statements apply to the investment center named Bowman Division. BOWMAN DIVISION Income Statement For the Year Ended December 31,2018 138,000 78,000 60,000 Sales revenue Cost of goods sold Gross margin Operating expenses Selling expenses Depreciation expense (6,000) 8.000) 46,000 Operating income Nonoperating item Loss on sale of land Net income (16,000) 30,000 BOWMAN DIVISION Balance Sheet As of December 31, 2018 Assets...

  • M10-10 (Algo) Impact of New Investment on ROI, Residual Income [LO 10-4, 10-5) The Western Division...

    M10-10 (Algo) Impact of New Investment on ROI, Residual Income [LO 10-4, 10-5) The Western Division of Claremont Company had net operating income of $149,000 and average invested assets of $550,000 Claremont has a required rate of return of 13.00 percent. Western has an opportunity to increase operating income by $45,000 with a $100,000 investment in assets. Compute Western Division's return on investment and residual income currently and if it undertakes the project. (Enter your ROI answers as a percentage...

  • Exercise 9-12 Evaluating New Investments Using Return on Investment (ROI) and Residual Income [LO9-1, LO9-2] Selected...

    Exercise 9-12 Evaluating New Investments Using Return on Investment (ROI) and Residual Income [LO9-1, LO9-2] Selected sales and operating data for three divisions of different structural engineering firms are given as follows: Division A Division B Division C   Sales $ 5,700,000 $ 9,700,000 $ 8,800,000   Average operating assets $ 1,140,000 $ 4,850,000 $ 1,760,000   Net operating income $ 273,600 $ 853,600 $ 180,400   Minimum required rate of return 17.00 % 17.60 % 14.00 % Required: 1. Compute the return on...

  • ROI and Residual Income: Impact of a New Investment The Mustang Division of Detroit Motors had an operating income of $7...

    ROI and Residual Income: Impact of a New Investment The Mustang Division of Detroit Motors had an operating income of $700,000 and net assets of $4,000,000. Detroit Motors has a target rate of return of 16 percent. (a) Compute the return on investment. (Round your answer to three decimal places.) (b) Compute the residual income. (c) The Mustang Division has an opportunity to increase operating income by $200,000 with an $950,000 investment in assets. 1. Compute the Mustang Division's return...

  • ROI and Residual Income: Impact of a New Investment The Mustang Division of Detroit Motors had...

    ROI and Residual Income: Impact of a New Investment The Mustang Division of Detroit Motors had an operating income of $900,000 and net assets of $4,000,000. Detroit Motors has a target rate of return of 16 percent. (a) Compute the return on investment. (Round your answer to three decimal places.) 22.5 (b) Compute the residual income. $ 260,000 (c) The Mustang Division has an opportunity to increase operating income by $250,000 with an $750,000 investment in assets. 1. Compute the...

  • ROI and Residual Income: Impact of a New Investment The Mustang Division of Detroit Motors had...

    ROI and Residual Income: Impact of a New Investment The Mustang Division of Detroit Motors had an operating income of $900,000 and net assets of $5,000,000. Detroit Motors has a target rate of return of 16 percent. (a) Compute the return on investment. (Round your answer to three decimal places.) Answer (b) Compute the residual income. $Answer (c) The Mustang Division has an opportunity to increase operating income by $200,000 with an $850,000 investment in assets. 1. Compute the Mustang...

  • Evaluating New Investments Using Return on Investment (ROI) and Residual Income Three divisions of Watcore Inc....

    Evaluating New Investments Using Return on Investment (ROI) and Residual Income Three divisions of Watcore Inc. report the following sales and operating data: Division A Division B    Division C Sales . . .... . . . . . .. . .. ..      $6,000,000     $10,000,000     $8,000,000 Average operating assets . . .         $1,500,000 $5,000,000 $2,000,000 Operating income ... .... . . $300,000      $900,000      $180,000 Minimum required rate of return.         15%                   18%              12% Required: 1. Compute the return...

  • Return on Investment for Multiple Investments, Residual Income The manager of a division that produces add-on...

    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 $29.4 million and expected operating income of $4.335 million. The outlay required for each...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT