Net product line net operating income = 9600000*(1-65%)-2582400= $777600 | |||
Margin = Net operating income/Sales | |||
Turnover = Sales/Operating assets | |||
ROI = Margin*Turnover | |||
Present | New line | Total | |
Sales | 22235000 | 9600000 | 31835000 |
Net operating income | 2153200 | 777600 | 2930800 |
Operating assets | 4625000 | 2400000 | 7025000 |
Margin | 9.68% | 8.10% | 9.21% |
Turnover | 4.81 | 4.00 | 4.53 |
ROI | 46.56% | 32.40% | 41.72% |
1 | |||
ROI for this year = 46.56% | |||
2 | |||
ROI for new product line by itself = 32.40% | |||
3 | |||
ROI for next year = 41.72% | |||
4 | |||
Reject, as ROI decreases | |||
5 | |||
Adding the new product line would increase company's overall ROI | |||
6 | |||
Present | New line | Total | |
Operating assets | 4625000 | 2400000 | 7025000 |
Minimum required return | 14% | 14% | 14% |
Minimum Net operating income | 647500 | 336000 | 983500 |
Actual Net operating income | 2153200 | 777600 | 2930800 |
Minimum Net operating income | 647500 | 336000 | 983500 |
Residual income | 1505700 | 441600 | 1947300 |
a | |||
Residual income for this year = $1505700 | |||
b | |||
Residual income for new product line =$441600 | |||
c | |||
Residual income for next year = $1947300 | |||
d | |||
Accept, as residual income increases |
Problem 10-18 Return on Investment (ROI) and Residual Income [LO10-1, LO10-2] "I know headquarter...
Help me please. Problem 10-18 Return on Investment (ROI) and Residual Income [LO10-1, LO10-2] "I know headquarters wants us to add that new product line" said Dell Havasi, manager of Billings Company's Office Products Division. "But I want to see the numbers before I make any move. Our division's return on investment (ROI) has led the company for three years, and I don't want any letdown." Billings Company is a decentralized wholesaler with five autonomous divisions. The divisions are evaluated...
Problem 10-18 Return on Investment (ROI) and Residual Income (LO10-1, LO10-2] "I know headquarters wants us to add that new product line," said Dell Havasi, manager of Billings Company's Office Products Division. “But I want to see the numbers before I make any move. Our division's return on investment (ROI) has led the company for three years, and I don't want any letdown." Billings Company is a decentralized wholesaler with five autonomous divisions. The divisions are evaluated on the basis...
Problem 10-18 Return on Investment (ROI) and Residual Income [LO10-1, LO10-2] "I know headquarters wants us to add that new product line," said Dell Havasi, manager of Billings Company's Office Products Division. "But I want to see the numbers before I make any move. Our division's return on investment (ROI) has led the company for three years, and I don't want any letdown. Billings Company is a decentralized wholesaler with five autonomous divisions. The divisions are evaluated on the basis...
Problem 11-18 Return on Investment (ROI) and Residual Income [LO11-1, LO11-2] "I know headquarters wants us to add that new product line," said Dell Havasi, manager of Billings Company's Office Products Division. "But I want to see the numbers before I make any move. Our division's return on investment (ROI) has led the company for three years, and I don't want any letdown." Billings Company is a decentralized wholesaler with five autonomous divisions. The divisions are evaluated on the basis...
Problem 11-18 Return on Investment (ROI) and Residual Income (LO11-1, LO11-2] "I know headquarters wants us to add that new product line," said Dell Havasi, manager of Billings Company's Office Products Division. "But I want to see the numbers before I make any move. Our division's return on investment (ROI) has led the company for three years, and I don't want any letdown." 6.25 points Billings Company is a decentralized wholesaler with five autonomous divisions. The divisions are evaluated on...
Problem 10-18 Return on Investment (ROI) and Residual Income [LO10-1, LO10-2] “I know headquarters wants us to add that new product line,” said Dell Havasi, manager of Billings Company’s Office Products Division. “But I want to see the numbers before I make any move. Our division’s return on investment (ROI) has led the company for three years, and I don’t want any letdown.” Billings Company is a decentralized wholesaler with five autonomous divisions. The divisions are evaluated on the basis...
Problem 10-18 Return on Investment (ROI) and Residual Income [LO10-1, LO10-2] “I know headquarters wants us to add that new product line,” said Dell Havasi, manager of Billings Company’s Office Products Division. “But I want to see the numbers before I make any move. Our division’s return on investment (ROI) has led the company for three years, and I don’t want any letdown.” Billings Company is a decentralized wholesaler with five autonomous divisions. The divisions are evaluated on the basis...
"I know headquarters wants us to add that new product line," said Dell Havasi, manager of Billings Company's Office Products Division "But I want to see the numbers before I make any move. Our division's return on investment (ROI) has led the company for three years, and I don't want any letdown." Billings Company is a decentralized wholesaler with five autonomous divisions. The divisions are evaluated on the basis of ROI, with year-end bonuses given to the divisional managers who...
“I know headquarters wants us to add that new product line,” said Dell Havasi, manager of Billings Company’s Office Products Division. “But I want to see the numbers before I make any move. Our division’s return on investment (ROI) has led the company for three years, and I don’t want any letdown.” Billings Company is a decentralized wholesaler with five autonomous divisions. The divisions are evaluated on the basis of ROI, with year-end bonuses given to the divisional managers who...
Sales Variable expenses Contribution margin Fixed expenses Net operating income Divisional average operating assets $ 21,100,eee 13,350,48e 7,749,6ee 5,935,e00 $ 1,814,600 $ 4,220,00e The company had an overall return on investment (ROI) of 18.00 % this year (considering all divisions). Next year the Office Products Division has an opportunity to add a new product line that would require an additional investment that would increase average operating assets by $2,262,500. The cost and revenue characteristics of the new product line per...