Megamart, a retailer of consumer goods, provides the following information on tw

Question

Megamart, a retailer of consumer goods, provides the following information on two of its departments (each considered an investment center). Net Average Investment Center Sales Electronics Sporting goods 5 10,900,000 7,400,000 Income Invested Assets 722,500 5 4,250,000 770,000 5,500,000 1-a. Compute return on investment for each department Return on Investment Choose Numerator: Choose Denominator: = | Return on Investment Return on investment Electronics Sporting Goods 1-b. Using return on investment, which department is most efficient at using assets to generate returns for the company? O Sporting goods O Electronics

Explanation / Answer

1-a) choose numerator / Choose denominator = ROI net income / Average invested assets = ROI Electronics 722,500 / 4,250,000 = 17.00% Sporting goods 770,000 / 5,500,000 = 14.00% 1-b) Electronics Electronics Sporting goods 2-a) investment center net income 722,500 770,000 target net income 552500 715000 residual income 170,000 55,000 2-b) Electronics 2-c) yes,the new investment opprotunity must be accepted

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