The Western Division of Claremont Company had net operating income of $135,000 a

Question

The Western Division of Claremont Company had net operating income of $135,000 and average invested assets of $560,000. Claremont has a required rate of return of 15 percent Western has an opportunity to increase operating income by $12,000 with a $108,000 investment in assets. Compute Western Division's return on investment and residual income currently and If it undertakes the project. (Round "ROl" answer to 2 decimal places.) Return on Investment (ROI) Residual Income 24.11 % $ 51,000 ct: Return on Investment (ROI) Residual Income s 45 References eBook & Resources Mini Exercise Learning Objective: 10-04 Compute and interpret return on investment, investment turnover, and profit margin. Learning Objective: 10-05 Compute and interpret residual income Difficulty: Easy O Type here to search

Explanation / Answer

Current: ROI 24.11% =135000/560000 Residual income 51000 =135000-(560000*15%) Proposed project: ROI 11.11% =12000/108000 Residual income -4200 =12000-(108000*15%)

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