st will require an investment company Requirements , What is the return ornity t
ID: 2588175 • Letter: S
Question
st will require an investment company Requirements , What is the return ornity to nt of $90,000. This investment would earn $9,000 for the amics has the opportunity to undertake a new project Performance Evaluati riginal return on investment (ROI) for Gable Ceramics (before makina any additional investment)? ROl be for Gable Ceramics if this investment opportunity were under- 2 What would the ld the manager of the Gable Ceramics division want to make this invest ment if she were evaluated based on ROl? Why or why not? is the ROl of the investment opportunity? Would the investment be desirable from the standpoint of Kerwin Corporation? Why or why not? 4 What would the residual income (RI) be for Gable Ceramics if this investment op s. What is the RI of the investment opportunity? Would the investment be desirable s Which performance measurement method, ROl or Rl, promotes goal portunity were to be undertaken? Would the manager of the Gable Ceramics division want to make this investment if she were evaluated based on R1? Why or why not? from the standpoint of Kerwin Corporation? Why or why not? congruence? Why?Explanation / Answer
Answer to E10-32B.
Requirement 1.
ROI = Operating Income / Total Assets * 100
Residential Division:
ROI = 70,200 / 195,000 * 100
ROI = 36%
Professional Division:
ROI = 152,040 / 362,000 * 100
ROI = 42%
Requirement 2.
Sales Margin = Operating Income / Sales * 100
Residential Division:
Sales Margin = 70,200 / 585,000 * 100
Sales Margin = 12%
Professional Division:
Sales Margin = 152,040 / 1,013,600 * 100
Sales Margin = 15%
Requirement 3.
Capital Turnover = Sales / Capital Employed or Total Assets
Residential Division:
Capital Turnover = 585,000 / 195,000
Capital Turnover = 3.0 times
Professional Division:
Capital Turnover = 1,013,600 / 362,000
Capital Turnover = 2.8 times
Requirement 4.
ROI = Margin * Capital Turnover
Residential Division:
ROI = 12% * 3
ROI = 36%
Professional Division:
ROI = 15% * 2.8
ROI = 42%
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