acct 2302 managerial accounting chapter 22 ex 22 8 495875
Exercise 22-8 Computing return on assets and residual income; investing decision LO A1
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Megamart, a retailer of consumer goods, provides the following information on two of its departments (each considered an investment center). Don't use plagiarized sources. Get Your Custom Essay on
acct 2302 managerial accounting chapter 22 ex 22 8 495875
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| Investment Center | Sales | Net Income |
Average Invested Assets |
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| Electronics | $ | 10,000,000 | $ | 442,500 | $ | 2,950,000 | |
| Sporting goods | 8,600,000 | 896,000 | 5,600,000 | ||||
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| 1.1 |
Compute return on investment for each department.
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| 1.2 |
Using return on investment, which department is most efficient at using assets to generate returns for the company? |
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| 2.1 |
Assume a target income level of 12.9% of average invested assets. Compute residual income for each department. |
| 2.2 | Which department generated the most residual income for the company? |
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| 3. |
Assume that the Electronics department is presented with a new investment opportunity that will yield a 15.6% return on assets. Should the new investment opportunity be accepted? |
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