Return on Investment and Investment Decisions

Leslie Blandings, division manager of Audiotech Inc., was debating the merits of a new product—a weather radio that would put out a warning if the county in which the listener lived were under a severe thunderstorm or tornado alert.

The budgeted income of the division was $825,000 with operating assets of $4,225,000. The proposed investment would add income of $640,000 and would require an additional investment in equipment of $4,000,000. The minimum required return on investment for the company is 15%.

Required:

1. Compute the ROI of the following (round to the nearest whole percent):

2. Compute the residual income of the following:

a. The division if the radio project is not undertaken.

%

b. The radio project alone.

%

c. The division if the radio project is undertaken.

%

 



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