newconnect mheducation.com HE 22 6 Seved Help Save & ExitSubmit 4 Check my work
ID: 2522485 • Letter: N
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newconnect mheducation.com HE 22 6 Seved Help Save & ExitSubmit 4 Check my work 0 Required information The following information applies to the questions displayed below Megamart, a retailer of consumer goods, provides the following information on two of its points considered an investment center). departments (each eBook Hint Print References Average Investnent Center Electronics Sporting goods Sales Income Inve ted Asset $39,840,000 $2,988,000 16,600,000 12, 600,000 25, 200,000 2,142,000 1. Compute return on investment for each department. Using return on investment, which department is most efficient at using assets to generate returns for the company? 2. Assume a target income level of 11% of average invested assets Compute residual income for each department, which department generated the most residual income for the company? 3. Assume the Electronics department is presented with a new investment opportunity that will yield a 15% return on investment. Should the new investment opportunity be accepted? Complete this question by entering your answers in the tabs belovw Required 1 Required 2 Required 3 Compute return on Investment for each department. Using return on investment, which department is most efficlent at using assets to generate returns for the company?Explanation / Answer
Solution 1:
Solution 2:
Solution 3:
If electronics department having investment opportunity that yield a 15% return on investment, then the provided yield is more than target return of the company and result in higher residual income, therefore new investment opportunity should be accepted.
However if electronics department apprisial is done on the basis of ROI, then its overall ROI will decrease after new investment, therefore in that scenario, electonic department should not accept new investment opportunity.
Return on investment Particulars Choose Numerator / Choose denomerator = Return on Investment Formula Income / Average Invested Assets = Return on Investment Electronics $2,988,000.00 / $16,600,000.00 = 18.00% Sporting Goods $2,142,000.00 / $12,600,000.00 = 17.00% Which department is more efficient at using assets to generate returns for the company ElectronicsRelated Questions
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