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Question
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 departments (each considered an The following information investment center). Average Invested Assets $16,300,000 12,300,000 Sales Investment Center Electronics Sporting goods Income $32,600,000 $2,771,000 15,744,000 1,968,000 1. Compute return on investment for each department. Using return on investment, which department is most efficient at using assets to generate returns for the company? 2. Assume a target income level of 12% of average invested assets. Compute residual income for each department, which department generated the most residual income for the company? 3. Assume the Electronics department is presented with a new investment opportunity that will yield a 14% return on investment. Should the new investment opportunity be accepted?Explanation / Answer
SOLUTION
(A)
- Electronics is most efficient at using assets to generate returns for the company.
(B)
Target net income -
Electronics- 16,300,000 * 12% = 1,956,000
Sporting goods - 12,300,000 * 12% = 1,476,000
- Electronics generated the most residual income for the company
(C) Yes, the new investment opportunity should be accepted.
Net Income ($) (A) Avergae invested assets ($) (B) Return on investment (A/B) Electronics 2,771,000 16,300,000 17% Sporting Goods 1,968,000 12,300,000 16%Related Questions
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