Gibbs LED Ltd produces and sells LED traffic lights nationally and international

Question

Gibbs LED Ltd produces and sells LED traffic lights nationally and internationally. Information about two of its divisions, in Australian dollars, follows: Operating Income Required rate of return WACC Current Liabilities After-tax income Australia New Zealand Invested Capital (Total Assets)$6,000,000 $600,000 $1,500,000 $180,000 10% 9% $15,000 $900,000 $120,000 10% 9% 120,000 $ Required: . Calculate each division's ROI, Residual Income and EVA. 2. Suppose the Australian Division had an opportunity to invest $4,750,000 in a project that would generate sales of $7,500,000 and a return on sales of 10%. Would the division manager be likely to undertake this project if he is evaluated using ROl? Explain.

Explanation / Answer

In the above question it was given that,

2)Suppose the australian division had an oppurtunity to invest $4750000 in a project that would generate sales of $75,00,000

So for the original data, it makes additional investment and additional sales will be generated, and also return on sales of 10%

Therefore after considering the investment,

New invested capital = $6000000+$4750000 =$10,750,000

New operating income = $ 1500000+ (7500000*10%) = $22,50,000

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