Business
Engineering
Math
Science
Social Science
Managerial Accounting: The Corners...
Solutions
Managerial Accounting: The Corners...
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 $28.9 million and expected operating income of $4.335 million. The outlay required for each investment and the expected operating incomes are as follows:
(Note: Round all numbers to two decimal places.)
Required:
- 1. Compute the ROI for each investment project.
- 2. Compute the budgeted divisional ROI for each of the following four alternatives:
- a. The air conditioner investment is made.
- b. The turbocharger investment is made.
- c. Both investments are made.
- d. Neither additional investment is made.
- 3. CONCEPTUAL CONNECTION Assuming that divisional managers are evaluated and rewarded on the basis of ROI performance, which alternative do you think the divisional manager will choose?
- 4. CONCEPTUAL CONNECTION Suppose that the company sets a minimum required rate of return equal to 14%. Calculate the residual income for each of the following four alternatives:
- a. The air conditioner investment is made.
- b. The turbocharger investment is made.
- c. Both investments are made.
- d. Neither additional investment is made.
Which option will the manager choose based on residual income? Explain.
- 5. CONCEPTUAL CONNECTION Suppose that the company sets a minimum required rate of return equal to 10%. Calculate the residual income for each of the following four alternatives:
- a. The air conditioner investment is made.
- b. The turbocharger investment is made.
- c. Both investments are made.
- d. Neither additional investment is made.
Based on residual income, are the investments profitable? Why does your answer differ from your answer in Requirement 3?
1.
Calculate ROI for each investment project.
Return on Investment (ROI):
Return on investment can be defined as the amount of profit earned by the company on per dollar of investment. It can be computed by dividing operating income by the average operating assets.
Use the following formula to calculate ROI for Air conditioner:
Substitute $90,000 for operating income and $750,000 for average operating assets in the above formula.
2.
Calculate the budgeted divisional ROI for each alternative.
3.
Identify the appropriate alternative that a divisional manager should select.
4.
Calculate residual income for each alternative with a 14% rate of return.
5.
Calculate residual income for each alternative with a 10% rate of return.
Chapter 11 Solutions
Additional Business Solutions
Find more solutions based on key concepts
Show solutions addEntries for receipt and dishonor of notes receivable Journalize the following transactions in the accounts of M...
Corporate Financial Accounting
SYSTEMS DEVELOPMENT AND PROGRAM CHANGES Winston Financial Services (WFS), located in Parsippany, New Jersey, pr...
Accounting Information Systems
Reporting Cash on the Balance Sheet Your audit of Watt Corporation discovers the following information: Require...
Intermediate Accounting: Reporting And Analysis
IMPACT OF IMPROVEMENTS AND REPLACEMENTS ON THE CALCULATION OF DEPRECIATION On January 1, 20-1, Dans Demolition ...
College Accounting, Chapters 1-27
Based on Ziegler Inc.s data in Exercise 17, assume that a transfer price of 1,200 has been established and that...
Financial And Managerial Accounting
The following three identical units of Item A are purchased during April: Assume that one unit is sold on April...
Financial Accounting
Variable and absorption costing Ansara Company had the following abbreviated income statement for the year ende...
Financial & Managerial Accounting
Using Past Information to Estimate Required Returns Use online resources to work on this chapter's questions. P...
Fundamentals of Financial Management (MindTap Course List)
(Total Cost and Marginal Cost) Complete the following table, assuming that each unit of labor costs $75 per day...
ECON: MICRO4 (New, Engaging Titles from 4LTR Press)
Contrast the focus of marketing activities during the five eras of marketing history.
Contemporary Marketing
The residents of Vegopia spend all of their income on cauliflower, broccoli, and carrots. In 2016, they spend a...
Principles of Macroeconomics (MindTap Course List)
In a Gallup telephone survey conducted on April 9-10,2013, the person being interviewed was asked if he would v...
STATISTICS F/BUSINESS+ECONOMICS-TEXT
BOND VALUATION Madsen Motorss bonds have 23 years remaining to maturity. Interest is paid annually; they have a...
Fundamentals of Financial Management, Concise Edition (MindTap Course List)
Discuss how emerging technologies, such as the Internet, affect the GL/BR process. In what ways will organizati...
Accounting Information Systems
When two individuals produce efficiently and then make a mutually beneficial trade based on comparative advanta...
Brief Principles of Macroeconomics (MindTap Course List)
Writing a Unique, Personable Cover Message: YOUR TASK. Using the job listing you found for ActIvity 13.7, write...
Essentials of Business Communication (MindTap Course List)
Identify consumer and marketer reactions to the state of the economy
MKTG 12:STUDENT ED.-TEXT
In what ways is your standard of living different from that of your parents or grandparents when they were your...
Principles of Microeconomics (MindTap Course List)
Why would small business ownership have great appeal to immigrants, women, and minorities?
Management, Loose-Leaf Version
What are the ways to improve a product mi? Describe two approaches to use existing products to strengthen a pro...
Foundations of Business (MindTap Course List)
What items would you include to figure out the opportunity cost of a vacation to Disney World?
Essentials of Economics (MindTap Course List)
Diminishing marginal product explains why, as a firms output increases. a. the production function and total-co...
Principles of Economics (MindTap Course List)
Decision on transfer pricing Based on XPort Industries data in Exercise 19, assume that a transfer price of 190...
Financial & Managerial Accounting
Two items are omitted in each of the following four lists of income statement data. Determine the amounts of th...
Financial Accounting
a. Over what period of time should the cost of a patent acquired by purchase be amortized? b. In general, what ...
Accounting (Text Only)
On September 30, Hilltop Companys selected payroll accounts are as follows: Prepare general journal entries to ...
College Accounting (Book Only): A Career Approach
Foreign Affairs magazine conducted a survey to develop a profile of its subscribers (Foreign Affairs website, F...
Statistics for Business & Economics, Revised (MindTap Course List)
What would each of the following changes do to M1 and M2?
Exploring Economics
INFLATION AND INTEREST RATES In late 1980, the U.S. Commerce Department released new data showing inflation was...
Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)
Tonis Tech Shop has total credit sales for the year of 170,000 and estimates that 3% of its credit sales will b...
College Accounting, Chapters 1-27 (New in Accounting from Heintz and Parry)
The Petty Cash account is a(n) __________. a. Liability b. Expense c. Asset d. Owners Equity e. Prepaid Account
College Accounting (Book Only): A Career Approach
If the results of the cost/benefit analysis do not agree with those of the effectiveness analysis, there is pro...
Pkg Acc Infor Systems MS VISIO CD
Draw the supply and demand curves for turkey. In the equilibrium, show producer and consumer surplus. Explain w...
Principles of Macroeconomics (MindTap Course List)
HEDGING The Zinn Company plans to issue 20,000,000 of 10-year bonds in March 2015 to help finance a new researc...
Fundamentals of Financial Management (MindTap Course List)
Bank reconciliation and entries The cash account for All American Sports Co. on April 1, 20Y5. indicated a bala...
Survey of Accounting (Accounting I)
Entries for bank reconciliation Using the data presented in Exercise 7-18, journalize the entry or entries that...
Corporate Financial Accounting
Refer to Problem 2-18B. Assume that Nelson had agreed with her employer prior to the performance of the work th...
PAYROLL ACCT.,2019 ED.(LL)-TEXT
If the CPI is 150 and nominal income is 100,000, what does real income equal?
Economics (MindTap Course List)
Suppose a bond pays annual interest of 80. Compute the interest rate per year that a bondholder can earn if the...
Economics For Today
What does it mean to obtain a competitive advantage? What role does the cost management system play in helping ...
Cornerstones of Cost Management (Cornerstones Series)
Acron is a large drug company. At the current time, the beginning of year 0, Acron is trying to decide whether ...
Practical Management Science
What are likely to be the most important sources of power in a buyer-seller negotiation?
Purchasing and Supply Chain Management
