The manager of Stock Division projects the following for next year: Sales $185,000 $60,000 $375,000 Operating income Operating assets The manager can invest in an additional project that would require 40,000 investment in additional assets and would generate s6,000 of additional income. The company's minimum rate of return is 14%. What is the residual income for Stock Division with the additional project? O M00 O ML0 O 00

The manager of Stock Division projects the following for next year: Sales $185,000 $60,000 $375,000 Operating income Operating assets The manager can invest in an additional project that would require 40,000 investment in additional assets and would generate s6,000 of additional income. The company's minimum rate of return is 14%. What is the residual income for Stock Division with the additional project? O M00 O ML0 O 00

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

Chapter9: Long-term Liabilities

Section: Chapter Questions

Problem 102.3C

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Division A of Kern Co. has sales of $350,000, cost of goods sold of $200,000, operating expenses of $30,000, and invested assets of $600000. What is the return on investment for Division A? A. 20% B. 25% C. 33% D. 40%
Return on Investment and Economic Value Added Calculations with Varying Assumptions Knitpix Products is a division of Parker Textiles Inc. During the coming year, it expects to earn income of 310,000 based on sales of 3.45 million. Without any new investments, the division will have average operating assets of 3 million. The division is considering a capital investment projectadding knitting machines to produce gaitersthat requires an additional investment of 600,000 and increases net income by 57,500 (sales would increase by 575,000). If made, the investment would increase beginning operating assets by 600,000 and ending operating assets by 400,000. Assume that the actual cost of capital for the company is 7%. (Note: Round all answers to four decimal places.) Required: 1. Compute the ROI for the division without the investment. 2. Compute the margin and turnover ratios without the investment. Show that the product of the margin and turnover ratios equals the ROI computed in Requirement 1. 3. CONCEPTUAL CONNECTION Compute the ROI for the division with the new investment. Do you think the divisional manager will approve the investment? 4. CONCEPTUAL CONNECTION Compute the margin and turnover ratios for the division with the new investment. How do these compare with the old ratios? 5. CONCEPTUAL CONNECTION Compute the EVA of the division with and without the investment. Should the manager decide to make the knitting machine investment?
Company A has current sales of $10,000,000 and a 45% contribution margin. Its fixed costs are $3,000,000. Company B is a service firm with current service revenue of $5,000,000 and a 20% contribution margin. Company Bs fixed costs are $500,000. Compute the degree of operating leverage for both companies. Which company will benefit most from a 25% increase in sales? Explain why.
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