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10) The current controllable margin for Stom Division is S124,000. Its current operating assets are $400,000. The division is considering purchasing equipment for $120,000 that will increase annual controllable margin by an estimated S20,000. If the equipment is purchased, what will happen to the return on investment for Stom Division? a. b. C. d. An increase of 16.1% A decrease of 13.3% A decrease of 3.3% A decrease of 7.2%

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Answer #1
Ans. Option c A decrease of 3.3%
*Calculation:
Decrease ROI = Current ROI - ROI after purchase of equipment
31% - 27.7%
3.3%
Current ROI =   Controllable margin / Current operating assets * 100
124000 / 400000 * 100
31%
ROI after purchase of equipment   =   Total controllable margin / Total operating assets * 100
144000 / 520000 * 100
27.7%
*Total controllable margin = 124000 + 20000
144000
*Total operating assets = 400000 + 120000
520000
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