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Author Question: Capital Investments has three divisions. Each division's required rate of return is 15%. Planned ... (Read 188 times)

Alygatorr01285

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on: Mar 6, 2021
Capital Investments has three divisions. Each division's required rate of return is 15%. Planned operating results for 2015 are as follows: 

DivisionOperating incomeInvestment
A$15,000,000$100,000,000
B$25,000,000$125,000,000
C$11,000,000$ 50,000,000
The company is planning an expansion, which will require each division to increase its investments by $25,000,000 and its income by $4,500,000. 

Required:
a.  Compute the current ROI for each division. 

b.  Compute the current residual income for each division. 

c.  Rank the divisions according to their current ROIs and residual incomes. 

d.  Determine the effects after adding the new project to each division's ROI and residual income. 

e.  Assuming the managers are evaluated on either ROI or residual income, which divisions are pleased with the expansion and which ones are unhappy?
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Marked as best answer by Alygatorr01285 on Mar 6, 2021

diana chang

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Reply #1 on: Mar 6, 2021
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Alygatorr01285

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Reply 2 on: Mar 6, 2021
Great answer, keep it coming :)

Zebsrer

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Reply 3 on: Yesterday
YES! Correct, THANKS for helping me on my review

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