Megamart, a retailer of consumer goods, provides the following information on tw
ID: 2609641 • Letter: M
Question
Megamart, a retailer of consumer goods, provides the following information on two of its (each considered an investment center). Net Average Investment Center Sales Income Invested Assets S 10,700,000 S 693,500 S 3,650,000 846,000 4,700,000 Electronics Sporting goods 7,700,000 1-a. Compute return on investment for each department Return on Investment Choose Numerator: Choose 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? Electronics O Sporting goods 2-a. Assume a target income level of 12.5% of average invested assets. Compute residual income for Investment Center Electronics Sporting Goods Net income Target net income Residual income 2-b. Which department generated the most residual income for the company? Sporting goods Electronics 3. Assume the Electronias department is presented with a new investment opportunity that will yield a 18% return on investment. Should the new investment opportunity be accepted? Yes, the new investment opportunity should be accepted O No, the new investment opportunity should not be acceptedExplanation / Answer
Dear Student Thank you for using Chegg Please find below the answer and please give thumbs up 1-a Statementshowing Computations Return on Investment Paticulars Choose Numerator / Chose Dnominator = Return on Investment Electronics 693,500.00 3,650,000.00 19.00% Sporting Goods 846,000.00 4,700,000.00 18.00% 1-b Electronics since it has higher ROI 2-a Investment Center Electronics Sporting Goods Net Income 693,500.00 846,000.00 Target Net Income = Avg Invested Assets *12.5% 456,250.00 587,500.00 Residual Income = Net Income - Target Net income 237,250.00 258,500.00 2-b Sporting goods 3 Yes the new investment oppurtunity should be accepted since Target income level is 12.5% and ROI is 16%