Megamart, a retailer of consumer goods, provides the following information on tw
ID: 2466347 • Letter: M
Question
Megamart, a retailer of consumer goods, provides the following information on two of its departments (each considered an investment center).
Compute return on investment for each department.
Using return on investment, which department is most efficient at using assets to generate returns for the company?
Assume a target income level of 12.4% of average invested assets. Compute residual income for each department.
Assume the Electronics department is presented with a new investment opportunity that will yield a 14.4% return on investment. Should the new investment opportunity be accepted?
Megamart, a retailer of consumer goods, provides the following information on two of its departments (each considered an investment center).
Explanation / Answer
Return on Investment Net Income/Total Investment Electronic Center 19 Sporting Goods 16 Electronics is the most efficient at using the assets to generate returns for the company. Residual Income (Actual income level-target income level) Electronic Center 267300 Sporting Goods 162000 Electronic Deparment generated the most residual income for the company No, the new investment opportunity should not be accepted