Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. accounting
  3. the manager of a division that produces kitchen ap

The manager of a division that produces kitchen appliances is considering the opportunity to invest...

90.2K

Verified Solution

Question

Accounting

The manager of a division that produces kitchen appliances is considering the opportunity to invest in two independent projects. The first is a toaster and the second is a blender. Without the investments, the division will have total assets for the coming year of $14.5 million and after-tax income of $1.58 million. The invested capital required for each investment and the expected operating incomes are as follows: Toaster Blender After-tax operating income $33,750 $44,850 Invested capital 375,000 345,000 Corporate headquarters will obtain its financing for the kitchen appliances divisions further investments from long term debt and shares and the weighted average cost of capital is estimated to be 9 per cent. Required: Compute ROI for each investment project (2 marks) Compute the budgeted divisional ROI for each of the following alternatives: a. The toaster investment is made b. The blender investment is made c. Both investment are made d. Neither investment is made Assuming that divisional managers are evaluated and rewarded on the basis of ROI performance, which alternative do you think the divisional manager will choose?

Answer & Explanation Solved by verified expert
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
Become a Member

Other questions asked by students