Wescott Company has three divisions: A, B, and C. The company has a hurdle rate
ID: 2458660 • Letter: W
Question
Wescott Company has three divisions: A, B, and C. The company has a hurdle rate of 8 percent. Selected operating data for the three divisions are as follows:
Wescott is considering an expansion project in the upcoming year that will cost $5 million and return $450,000 per year. The project would be implemented by only one of the three divisions.
Compute the residual income for each division. (Loss amounts should be indicated by a minus sign.)
Compute the return on the proposed expansion project.
Compute the new ROI and residual income for each division if the project was implemented within that division. (Loss amounts should be indicated by a minus sign. Do not round your intermediate calculations. Round "ROI" answers to 2 decimal places.)
Wescott Company has three divisions: A, B, and C. The company has a hurdle rate of 8 percent. Selected operating data for the three divisions are as follows:
Explanation / Answer
Answer 1&2 - In $
Answer 4a:
Return on the proposed expansion project = Annual return / Initial Investment = 450,000 / 5,000,000 = 9.00%
Answer 5:
Division A Division B Division C Sales revenue 1,255,000 920,000 898,000 Cost of goods sold 776,000 675,000 652,000 Miscellaneous operating expenses 64,000 52,000 53,100 a. Net Income (Revenue - Costs) 415,000 193,000 192,900 Interest and taxes 48,000 41,000 41,500 b. Earning after interest and tax (Net income - interest and tax) 367,000 152,000 151,400 c. Average invested assets 8,300,000 1,930,000 3,215,000 ROI (a / c) 5.00% 10.00% 6.00% Residual income ( a - c * 8%) -249,000 38,600 -64,300Related Questions
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