acct 2302 managerial accounting chapter 22 ex 22 8 495875
Aug 29, 2021 | Uncategorized
Exercise 22-8 Computing return on assets and residual income; investing decision LO A1
|
Megamart, a retailer of consumer goods, provides the following information on two of its departments (each considered an investment center).
|
| Investment Center |
|
Sales |
|
Net
Income |
Average
Invested Assets |
| Electronics |
$ |
10,000,000 |
$ |
442,500 |
$ |
2,950,000 |
|
| Sporting goods |
|
8,600,000 |
|
896,000 |
|
5,600,000 |
|
|
| 1.1 |
Compute return on investment for each department.
|
| 1.2 |
Using return on investment, which department is most efficient at using assets to generate returns for the company?
|
|
Sporting goods |
|
Electronics |
|
| 2.1 |
Assume a target income level of 12.9% of average invested assets. Compute residual income for each department.
|
|
|
| 2.2 |
Which department generated the most residual income for the company? |
|
Sporting goods |
|
Electronics |
|
| 3. |
Assume that the Electronics department is presented with a new investment opportunity that will yield a 15.6% return on assets. Should the new investment opportunity be accepted?
|
|
No, the new investment opportunity should not be accepted |
|
Yes, the new investment opportunity should be accepted |
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