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 project—adding knitting machines to produce gaiters—that 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.
Calculate ROI for the division without investment.
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 division without investment:
Sub
2.
Calculate margin and turnover ratios without investment. Also, describe the product of margin and turnover is equal to the ROI computed.
3.
Calculate ROI with new investment. Also, describe whether the manager should approve the investment.
4.
Calculate margin and turnover ratios with new investment.
5.
Calculate EVA with and without the division. Describe whether the manager should make the knitting machine investment.
Accounting Information Systems
Financial Accounting
Corporate Financial Accounting
Financial And Managerial Accounting
Intermediate Accounting: Reporting And Analysis
Financial & Managerial Accounting
College Accounting, Chapters 1-27
Contemporary Marketing
Principles of Microeconomics (MindTap Course List)
Brief Principles of Macroeconomics (MindTap Course List)
Principles of Macroeconomics (MindTap Course List)
Accounting Information Systems
MKTG 12:STUDENT ED.-TEXT
ECON: MICRO4 (New, Engaging Titles from 4LTR Press)
Foundations of Business (MindTap Course List)
Fundamentals of Financial Management, Concise Edition (MindTap Course List)
STATISTICS F/BUSINESS+ECONOMICS-TEXT
Essentials of Economics (MindTap Course List)
Principles of Economics (MindTap Course List)
Fundamentals of Financial Management (MindTap Course List)
Essentials of Business Communication (MindTap Course List)
Management, Loose-Leaf Version
Financial Accounting
College Accounting (Book Only): A Career Approach
Financial & Managerial Accounting
Accounting (Text Only)
College Accounting, Chapters 1-27 (New in Accounting from Heintz and Parry)
College Accounting (Book Only): A Career Approach
Principles of Macroeconomics (MindTap Course List)
Pkg Acc Infor Systems MS VISIO CD
Fundamentals of Financial Management (MindTap Course List)
Statistics for Business & Economics, Revised (MindTap Course List)
Exploring Economics
Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)
Survey of Accounting (Accounting I)
Corporate Financial Accounting
PAYROLL ACCT.,2019 ED.(LL)-TEXT
Microeconomics
Economics (MindTap Course List)
Purchasing and Supply Chain Management
Economics For Today
Cornerstones of Cost Management (Cornerstones Series)