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Return On Investment For Each Department

The document contains calculations to analyze the return on investment and residual income of two departments, Electronics and Sporting Goods. The Electronics department had a higher return on investment and generated more residual income compared to the target. Therefore, a new investment opportunity with a 12% return should not be accepted since the current returns are higher than 12%.

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Aarti J
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36 views2 pages

Return On Investment For Each Department

The document contains calculations to analyze the return on investment and residual income of two departments, Electronics and Sporting Goods. The Electronics department had a higher return on investment and generated more residual income compared to the target. Therefore, a new investment opportunity with a 12% return should not be accepted since the current returns are higher than 12%.

Uploaded by

Aarti J
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
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1a Return on investment for each department

Numerator Denominator
Net income Average assets
Electronics 773500 4550000
Sporting goods 564000 4700000

1b Electronic department is more efficient

2a Residual income = Net income - (Average assets * return)


Average assets Return
Electronics 4550000 12.60%
Sporting goods 4700000 12.60%

Investment center Electronics Sporting goods


Net Income 773500 564000
target net income 573300 592200
Residual income 200200 -28200

2b Electronics department generated most residual income

3 No, the new investment opportunity should not be accepted, as the current return on investment is more tha
Return on investment
17.00%
12.00%

Target income
573300
592200

rent return on investment is more than the new opportunity

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