QUESTION: What is the NEW ROI should Morrison move forward with the investment?

Question

QUESTION: What is the NEW ROI should Morrison move forward with the investment? How do I go about solving this?

Thank you!

Cole Corporation operates three investment centers. The following financial statements apply to the investment center named Morrison MORRISON DIVISION Income Statement For the Year Ended December 31, 2014 $135,000 78,500 56,500 Sales revenue Cost of goods sold Gross margin Operating expenses Selling expenses Depreciation expense (5,000) (8,000) 43,500 Operating income Nonoperating item Loss on sale of land Net income (15.000) s 28,500 MORRISON DIVISION Balance Sheet As of December 31, 2014 Assets Cash Accounts recevable Merchandise inventory Equipment less accum. dep. Nonoperating assets 18,580 42,266 37,578 90,258 9,000 $197,682 Total assets 9,637 72,000 Accounts payable Notes payable Stockholders" equity Common stock Retained earnings 80,000 36,045 $197,682 Total liab. and stk. equity d. Cole has a desired ROl of 10 percent. Headquarters has $96,000 of funds to assign to its investment centers. The manager of the Morrison Division has an opportunity to invest the funds at an ROl of 12 percent. The other two divisions have investment opportunities that yield only 11 percent. Even so, the manager of Morrison rejects the additional funding. Explain why the manager of Morison would reject the funds under these circumstances. Round the computation to two decimal points

Explanation / Answer

Answer: ROI=Net operating income/Total Assets

=$43500/$197682=22%

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