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Category > Business & Finance Posted 01 Jun 2017 My Price 11.00

Ac€A?I know headquarters wants us to add that

Ac€A?I know headquarters wants us to add that new product line,Ac€?? said Brian Stettler, manager of Sparks ProductsAc€?c Central Division. Ac€A?But I want to see the numbers before I make a move. Our divisionAc€?cs return on investment (ROI) has led the company for three years, and I donAc€?ct want any letdown.Ac€??

     Sparks Products is a decentralized wholesaler with four autonomous divisions. The divisions are evaluated on the basis of ROI, with year-end bonuses given to divisional managers who have the highest ROI. Operating results for the companyAc€?cs Central Division for last year are given below:
 
  Sales $ 23,200,000   
  Variable expenses   14,763,636   
     
  Contribution margin   8,436,364   
  Fixed expenses   6,414,000   
     
  Net operating income $ 2,022,364   
     
  Divisional operating assets $ 5,800,000   
     

The company had an overall ROI of 18% last year (considering all divisions). The companyAc€?cs Central Division has an opportunity to add a new product line that would require an investment of $3,670,000. The cost and revenue characteristics of the new product line per year would be as follows:
   
  Sales $ 10,890,000
  Variable expenses   65% of sales
  Fixed expenses $ 2,990,910
 
Required:
1.

Compute the Central DivisionAc€?cs ROI for last year; also compute the ROI as it would appear if the new product line is added. (Do not round intermediate percentage values. Round your final answers to 2 decimal places (i.e., 0.1234 should be entered as 12.34).)
 
 
  ROI  
Present 34.87 %
New product line alone   %
Total   %

Suppose that the companyAc€?cs minimum required rate of return on operating assets is 15% and that performance is evaluated using residual income.
a.

Compute the Central DivisionAc€?cs residual income for last year; also compute the residual income as it would appear if the new product line is added.
   
 
 
 
  Residual Income
Present  
New product line alone  
Total

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Status NEW Posted 01 Jun 2017 06:06 AM My Price 11.00

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