Problem 12-17 (Part Level Submission) Sarah Jones, the manager of the Teen divis
ID: 2582398 • Letter: P
Question
Problem 12-17 (Part Level Submission) Sarah Jones, the manager of the Teen division of the Marx Clothing Company, was evaluating the acquisition of a new embroidery machine. The budgeted operating income of the Teen division was $4,997,900 with total assets of $32,463,000 and noninterest-bearing current liabilities of $1,446,200. The proposed investment would add $1,033,900 to operating income and would require an additional investment of $5,280,800. The targeted rate of return for the Teen division is 12 percent. (Ignore taxes in this problem.) (a1) Compute the ROI of the Teen division if the embroidery machine is not purchased. (Round answer to 2 decimal places, e.g. 15.32%.) ROIExplanation / Answer
Budgeted operating income = 4997900
Total assets = 32463000
Current liabilities = 1446200
Net invested capital = 32463000 - 1446200 = 31016800
Return on investment if the embroidery machine is not purchased = Budgeted operating income /Net invested capital *100
= (4997900/31016800) *100 = 16.11%