Standard Media Has a Required Rate of Return of 5

question 61

Multiple Choice

Standard Media has a required rate of return of 5 percent, a cost of capital of 4 percent, and an income tax rate of 30 percent. The following information about its two divisions has been provided by management: $\begin{array}{lrr}&\text { Audio Division }&\text { Video Division }\\\hline\text { NOPAT } & \$ 1,400,000 & \$ 2,000,000 \\\text { Sales } & \$ 10,000,000 & \$ 12,500,000 \\\text { Invested capital } & \$ 15,000,000 & \$ 17,500,000\end{array}$ An opportunity is available that yields an expected income of $45,900 on an investment of $450,000. If the divisions are evaluated based on return on investment, which division(s) will accept the opportunity?

• A) Both will accept.
• B) Neither will accept.
• C) Only the Video Division will accept.
• D) Only the Audio division will accept.

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Definitions:

Federalists

A political group in the early United States advocating for a strong federal government and the ratification of the Constitution.

New England Merchant

Refers to businessmen in the early American colonial period based in the New England region who were involved in trade and commerce, often engaged in shipping goods across the Atlantic.

Urban Artisan

A skilled worker or craftsman who lives and works in an urban area, often producing handmade goods or providing specialized services.

Assumption of State Debts

A financial policy where the federal government assumes the debts incurred by the states, often to standardize and stabilize the national economy.