(ROI, RI) Brummy Limited consists of several investment centres. One investment centre, the Green Division, has a controllable investment of $750,000, and profits are expected to be $150,000 this year. An investment opportunity is offered to Green that will yield a profit of $15,000 from an additional investment of $100,000. Brummy accepts projects if the ROI exceeds the cost of capital, which is 12%.
- Calculate Green’s ROI currently, for the additional investment, and after the investment.
- How will Green and Brummy view this investment opportunity?
- Calculate the effect of the new investment opportunity on Green’s residual income.