Question

Check my work Part 1 of 2 Required information Use the following information for the Exercises below. The following information applies to the questions displayed below.) points Megamart, a retailer of consumer goods, provides the following information on two of its departments (each considered an investment center). eBook Investment Center Electronics Sporting goods Sales Income $39, 840,000 $2,988,000 25,200,000 2,142,000 Average Invested Assets $16,600,000 12,600,000 Hint Ask Print References Exercise 22-10 Computing return on investment and residual income; investing decision LO A1

Answer 1

A B C D E G H 1 1) 2 Return on Investment: 3 Electronics Sporting 4. Income 29880001 2142000 5 Divide: Average Invested assets 16600000 12600000 6 Return on Investment 18% 17% 7 8 9 2) 10 Residual Income: 11 Electronics Sporting 12 Income 29880001 2142000 13 Average Invested assets 16600000 12600000 14 15 Target income @11% 1826000 1386000 16 Average assets *11%) 17 Residual income 1162000 756000 18 (Actual income-Target income) 19 20 3) 21 When the decision is based on return on investmnet, the new opportunity shall be rejected as it will reduce the department ROI 22 23 However, it will increase the residual income of the department. Hence, the decision in favor of investment is taken. 20