1 Contact Us I Log C MANAGERIAL ACCT (ACCT 210 Davis, Managerial Accounting, 2e

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1 Contact Us I Log C MANAGERIAL ACCT (ACCT 210 Davis, Managerial Accounting, 2e Read, Study & Practice Gradebook ORION ment> Open Assignment CALCULATOR MESSAGE MY INSTRUCTOR FULL SCREEN 4 BACK Exercise 10-20 Isabelle Abiassi operates a popular summer camp for elementary school children. Projections for the current year are as follows Sales revenue $7,440,000 Operating income $653,000 Average assets $3,728,000 The camp's weighted-average cost of capital is 8%, and Isabelle requires that all new investments generate a return on investment of at least 12%. The camp's current tax rate is 25%. At last week's advisory board meeting, tsabelle told the board that she ha president presented Isabelle with the following list of three potential investments to improve the camp facilities. d up to $50,000 to invest in new facilities at the camp and asked them to recommend some projects. Today the board's Swimming Playground 3,060 25,500 Pool Gym Incremental operating income Average total assets s 3,402 2,224 37,800 13,900 Calculate the return on investment, residual income, and economic value added for each of the three projects. (Enter negative amounts using either a negative sign preceding the number e.g 45 or parentheses e-g. (45). Round Economic Value Added answer to 2 decimal places, e.g. 15.25 & all other ansivers to o decimal places, e.g.15 or 159e.) Pool Gym Return on Investment Residual Income Economic Value Added ?- O Type here to search 47 PM /30/2018 A ENG

Explanation / Answer

Play Ground

Pool

Gym

Return on residual Income

12%

9%

16%

Residual Income

0 (Zero)

- $1135 (Negative)

$556

Economic Value Added

$255

- $472 (Negative)

$556

PLAYGROUND

1.Return on investment

=Incremental operating income / Average total assets

=$3060/ $25500 * 100

=12%

2.Residual Income

= $3060 – ($25500 x 12%)

= $3060 - 3060

= 0 (Zero)

3.Economic Value Added

=($3060 x 75%) – ($25500 x 8%)

= $2295 - $2040

= $255

SWIMMING POOL

1.Return on investment

=Incremental operating income / Average total assets

=$3402 / $37800 * 100

=9%

2.Residual Income

= $3402 – ($37800 x 12%)

= $3402 – 4536

= - $1135 (Negative)

3.Economic Value Added

=($3402 x 75%) – ($37800 x 8)

= $2552 – 3024

= - $472 (Negative)

GYM

1.Return on investment

=Incremental operating income / Average total assets

=$2224 / 13900 * 100

=16%

2.Residual Income

= $2224 - ($13900 x 12%)

= $2224 – 1668

= $556

3.Economic Value Added

=($2224 x 75%) – ($13900 x 8%)

= $1668 - 1112

= $556

Play Ground

Pool

Gym

Return on residual Income

12%

9%

16%

Residual Income

0 (Zero)

- $1135 (Negative)

$556

Economic Value Added

$255

- $472 (Negative)

$556

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