The Portland Division\'s operating data for year 2015 is as follows: Return on i
ID: 2477028 • Letter: T
Question
The Portland Division's operating data for year 2015 is as follows:
Return on investment 12%
Minimum required rate of return 10%
Average net operating assets $500,000
Sales $1,600,000
Compute the net operating income of 2015.
Compute the margin of 2015.
The division is considering a new investment project with 15% of expected ROI. Should the division take or abandon the project when the performance is evaluated by (1) ROI or (2) Residual income?
Explanation / Answer
net operating income of 2015= 500000*12/100= 60000
margin of 2015= sales / average net operating assets
1600000/ 500000=3.2
the division should take the project in both situations because the project's ROI is greater than the current ROI and minimum required rate of return