The manager of Stock Division projects the following for next year: Sales $185,000 Operating income...
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The manager of Stock Division projects the following for next year: Sales $185,000 Operating income $60,000 Operating assets $375,000 The manager can invest in an additional project that would require $40,000 investment in additional assets and would generate $6,000 of additional income. The company's minimum rate of return is 14%. Which of the following statements is true?
a.The residual income of the division after accepting the additional project is less than the residual income of the division without the additional project; therefore, the new project will be rejected.
b.Average investment for Stock Division will decrease if the project is accepted for investment.
c.If the manager invests in the additional project, residual income of the division will increase.
d.If the manager invests in the additional project, ROI of the division will increase. e.None of these choices are correct.
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