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Firefox File Edit View History Bookmarks Tools Window Help C Chegg Study | Guided Solutions ? ,?15% D. Wed 3:52 PM Atika Ishtiaq a E newconnect.mheducation.com X https:!/newconnect.mheducation.com/flow/connect.htm ...Search Ch 09 Ex 9-10 6 Help Save & Exit Submit Saved Check my work Required information Use the following information for the Exercises below. [The following information applies to the questions displayed belowj Megamart, a retailer of consumer goods, provides the following information on two of its departments (each considered an points eBook investment center). Hint Average Invested Assets Ask Sales Income Inveatment Center Electronics Sporting gooda $39,840,000 $2,988, 000 $16,600,000 Print 25,200,000 2, 142, 000 12,600,000 Exercise 9-10 Computing return on investment and residual income; investing decision LO A1 1. Compute return on investment for each department. Using return on investment, which department is most efficient at using assets to generate returns for the company? 2. Assume a target income level of 11% of average invested assets. Compute residual income for each department, which department generated the most residual income for the company? 3. Assume the Electronics department is presented with a new investment opportunity that will yield a 15% return on investment. Should the new investment opportunity be accepted? Complete this question by entering your answers in the tabs below Me Prev 1 of 1! Next Hill

Solution

Req1. Income / Average Assets     = Return on Investment Electronics 2988000 16600000 18% Sporting Goods 2,142,000 12600000 17% Most effficient department Electronics Req 2: Net Income    - ( Average Assets   * 11%) = Residual Income Electronics 2988000 16600000 *11% 1162000 Sporting 2,142,000 12600000*11% 756,000 Req 3: yes, the investment opportunity shall be accpted. As it will give positive incremental residual income.