Paula Boothe, president of the Culver Corporation, has mandated a minimum 10% re
ID: 2580461 • Letter: P
Question
Paula Boothe, president of the Culver Corporation, has mandated a minimum 10% return on investment for any project undertaken by the company. Given the company’s decentralization, Paula leaves all investment decisions to the divisional managers as long as they anticipate a minimum rate of return of at least 10%. The Energy Drinks division, under the direction of manager Martin Koch, has achieved a 16% return on investment for the past three years. This year is not expected to be different from the past three. Koch has just received a proposal to invest $1,800,000 in a new line of energy drinks that is expected to generate $248,000 in operating income.
a)Calculate the return on investment expected on the new line of energy drinks. (Round answer to 1 decimal place, e.g. 5.1%.)
Explanation / Answer
Return on investment = Operating income/Operating assets = 248000/1800000= 13.8%