Homework: HW #8-Chapter 10 Save Score: 0.5 of 1 pt 70f9(4 complete) HW Score: 35

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Homework: HW #8-Chapter 10 Save Score: 0.5 of 1 pt 70f9(4 complete) HW Score: 35%, 3.5 of 10 pts E10-23A (similar to) Question Help * Cleary Ceramics, a division of Kerwin Corporation, has an operating income of $85,000 and total assets of $425,000. The required rate of return for the company is 10%. The company is evaluating whether it should use ntum on investment(ROI or residual income RI as a measurement of perfo nanoe for its division managers. The manager of Cleary Ceramics has the opportunity to undertake a new project that will require an investment of $175,000. This investment would eam $24,500 for the company. Read the requirements. The ROI of the investment opportunity is From the standpoint of Kerwin Corporation this investment isdesirable. The ROl of the investment opportunity is more than Kerwin's required rate of return. Requirement 4. What would the residual income (RI) be for Cleary Ceramics if this investment opportunity were to be undertaken? Would the manager of the Cleary Ceramics division want to make this investment if she were evaluated based on RI? Why or why not? First determine the formula to calculate the R Operating income . ( Total assets Target rate of return ) (Use parentheses or a minus sign for a negative RI.) The residual income (RI) for Cleary Ceramics if this investment opportunity were to be undertaken is $ Enter any number in the edit fields and then click Check Answer. RI Clear All Check Answer evaluating whether it should use return on investment (ROI) or residual Income (RI) as a measurement of performance for its division managers. The manager of Johnson Ceramics has

Explanation / Answer

4 Opoerating income = 85000+24500=109500 Total assets = 425000+175000 = 600000 Operating income-(Total assets*Target rate of return) = RI 109500-(600000*10%) = 49500 The residual income if this investment opportunity were undertaken is $49500 Yes, the namager would undertake this investment opportunity as it increases residual income

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