Comart, a retailer of consumer goods, provides the following information on two
ID: 2558415 • Letter: C
Question
Comart, 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. (Do not round your intermediate calculations and round your final answers to the nearest whole percentages. Omit the "%" sign in your response.)
Using return on investment, which department is most efficient at using assets to generate returns for the company?
Assume a target income level of 11.4% of average invested assets. Compute residual income for each department. (Omit the "$" sign in your response.)
Assume the Electronics department is presented with a new investment opportunity that will yield a 14.4% return on assets. (Assume a target income level of 11.4% of average invested assets.) Should the new investment opportunity be accepted?
Comart, a retailer of consumer goods, provides the following information on two of its departments (each considered an investment center).
Explanation / Answer
1.1--Return on Investment = Net Income/Average Invested Electronics 788500/4150000 19% Sporting goods 700000/5000000 14% 1.2 Using return on investment,Department most efficient at using assets to generate returns for the company Electronics (19%) 2.1 Department Average Invested assets Target Income at 14% Net Income Residual income(Net Income-Target Income) Electronics 4,150,000 581000 788,500 207,500 Sporting goods 5,000,000 700000 700,000 0 2.2 Department that generated the most residual income for the company Electronics 3--Accept as 14.4 % >11.4%