Answered

Discover the answers you need at Westonci.ca, a dynamic Q&A platform where knowledge is shared freely by a community of experts. Discover precise answers to your questions from a wide range of experts on our user-friendly Q&A platform. Experience the convenience of finding accurate answers to your questions from knowledgeable experts on our platform.

The Monarch Division of Allgood Corporation has a current ROI of 13 percent. The company target ROI is 9 percent. The Monarch Division has an opportunity to invest $5,700,000 at 11 percent but is reluctant to do so because its ROI will fall to 12.24 percent. The present investment base for the division is $9,300,000. Required Calculate the current residual income and the residual income with the new investment opportunity being included. Based on your answers to requirement a, should Monarch Division make the investment?



Calculate the current residual income and the residual income with the new investment opportunity being included.



Based on your answers to requirement a, should Monarch Division make the investment?

Sagot :

Answer and Explanation:

The computation is shown below:

Current residual Income is

= current investment base × (Current ROI - Target ROI)

= $9,300,000 × (13% - 9%)

= $9,300,000 × 4%

= $372,000

Now

New residual income is

= (New investment base) × (New ROI - target ROI)

= ($9,300,000 + $5,700,000) × (12.24% - 9%)

= $15,000,000 × 3.24%

= $486,000

Yes, Monarch division should make the investment because the new residual income is more than the present residual income

Your visit means a lot to us. Don't hesitate to return for more reliable answers to any questions you may have. Thank you for your visit. We're committed to providing you with the best information available. Return anytime for more. Your questions are important to us at Westonci.ca. Visit again for expert answers and reliable information.