Wescott Company has three divisions: A, B, and C. The company has a hurdle rate of 8 percent. Selected operating data for the three divisions are as follows: Sales revenue Cost of goods sold Miscellaneous operating expenses Interest and taxes Average invested assets Division A $ 1,270,000 Division 8 $ 977,000 Division C 785,000 717,000 $ 964,000 700,000 67,000 55,000 56,000 51,000 8,819,000 44,000 44,000 2,071,000 3,408,000 Wescott is considering an expansion project in the upcoming year that will cost $5.3 million and return $477,000 per year. The project would be implemented by only one of the three divisions. Required: 1. Compute the ROI for each division. 2. Compute the residual Income for each division. 3. Rank the divisions according to the ROI and residual Income of each. 4-a. Compute the return on Investment on the proposed expansion project 4-b. Is this an acceptable project? 5. Without any additional calculations, state whether the proposed project would Increase or decrease each division's ROI. 6. Compute the new ROI and residual Income for each division If the project was Implemented within that division. Complete this question by entering your answers in the tabs below. Req 1 Req 2 Req 3 Req 4A Req 4B Req 5 Req 6 Compute the ROI for each division. Note: Enter your answers as a percentage rounded to two decimal places, (i.e., 0.1234 should be entered as 12.34%.) Division A ROI 4.16 % Division B 7.77 % Division C 4.81 % Reg 1 Req 2 >
Wescott Company has three divisions: A, B, and C. The company has a hurdle rate of 8 percent. Selected operating data for the three divisions are as follows: Sales revenue Cost of goods sold Miscellaneous operating expenses Interest and taxes Average invested assets Division A $ 1,270,000 Division 8 $ 977,000 Division C 785,000 717,000 $ 964,000 700,000 67,000 55,000 56,000 51,000 8,819,000 44,000 44,000 2,071,000 3,408,000 Wescott is considering an expansion project in the upcoming year that will cost $5.3 million and return $477,000 per year. The project would be implemented by only one of the three divisions. Required: 1. Compute the ROI for each division. 2. Compute the residual Income for each division. 3. Rank the divisions according to the ROI and residual Income of each. 4-a. Compute the return on Investment on the proposed expansion project 4-b. Is this an acceptable project? 5. Without any additional calculations, state whether the proposed project would Increase or decrease each division's ROI. 6. Compute the new ROI and residual Income for each division If the project was Implemented within that division. Complete this question by entering your answers in the tabs below. Req 1 Req 2 Req 3 Req 4A Req 4B Req 5 Req 6 Compute the ROI for each division. Note: Enter your answers as a percentage rounded to two decimal places, (i.e., 0.1234 should be entered as 12.34%.) Division A ROI 4.16 % Division B 7.77 % Division C 4.81 % Reg 1 Req 2 >
Managerial Accounting: The Cornerstone of Business Decision-Making
7th Edition
ISBN:9781337115773
Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Chapter15: Financial Statement Analysis
Section: Chapter Questions
Problem 38E: Sundahl Companys income statements for the past 2 years are as follows: Refer to the information for...
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Transcribed Image Text:Wescott Company has three divisions: A, B, and C. The company has a hurdle rate of 8 percent. Selected operating data for the three
divisions are as follows:
Sales revenue
Cost of goods sold
Miscellaneous operating expenses
Interest and taxes
Average invested assets
Division A
$ 1,270,000
Division 8
$ 977,000
Division C
785,000
717,000
$ 964,000
700,000
67,000
55,000
56,000
51,000
8,819,000
44,000
44,000
2,071,000
3,408,000
Wescott is considering an expansion project in the upcoming year that will cost $5.3 million and return $477,000 per year. The project
would be implemented by only one of the three divisions.
Required:
1. Compute the ROI for each division.
2. Compute the residual Income for each division.
3. Rank the divisions according to the ROI and residual Income of each.
4-a. Compute the return on Investment on the proposed expansion project
4-b. Is this an acceptable project?
5. Without any additional calculations, state whether the proposed project would Increase or decrease each division's ROI.
6. Compute the new ROI and residual Income for each division If the project was Implemented within that division.
Complete this question by entering your answers in the tabs below.
Req 1
Req 2
Req 3
Req 4A
Req 4B
Req 5
Req 6
Compute the ROI for each division.
Note: Enter your answers as a percentage rounded to two decimal places, (i.e., 0.1234 should be entered as 12.34%.)
Division A
ROI
4.16 %
Division B
7.77 %
Division C
4.81 %
Reg 1
Req 2 >
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