8. 7.00 points The Bishop Division of Kingley Corporation has a current ROl of 1

Question

8. 7.00 points The Bishop Division of Kingley Corporation has a current ROl of 19 percent. The company target ROI is 15 percent. The Bishop Division has an opportunity to invest $4,400,000 at 18 percent but is reluctant to do so because its ROI will fall to 18.64 percent. The present investment base for the division is $7,700,000. Required Calculate the current residual income and new residual income, if new Investment opportunity is adopted. Answer is complete but not entirely correct. Current residual income s 308.000 $ 308,000 279,840 New residual income Whether the Bishop Division make the investment? OYes ONo

Explanation / Answer

Present investment base for the division is $7,700,000

Present Income =  Present investment base X Present ROI

= $7,700,000 X 18.64%

= $1,435,280

Target Income = Present investment base X Target ROI

= $7,700,000 X 15%

= $1,155,000

New Residual Income = $1,435,280 - $ 1,155,000

= $280,280.

Bishop can make investment

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