TotToys Ltd Any Funds Not Invested in a Project Will Be Invested

question 28

Essay

TotToys Ltd. recently made £2,000,000 of capital available to its Toddler Division. The manager of the Toddler Division is evaluating the possibility of investing the additional funds in two new toys. Information about the two new toys is as follows: $\begin{array}{lrr}&\text { Toy \#1 } & \text { Toy \#2 } \\\text { Frojected investment } & £ 900,000 & £ 750,000 \\\text { Expected operating income } & 144,000 & 90,000\end{array}$ Any funds not invested in a project will be invested to earn the company's required minimum return of 10 per cent. Without the additional investment, the Toddler Division's average operating assets would have been £10,000,000, and its operating income would have been £1,400,000.
a.Compute the Toddler Division's operating income and ROI, assuming that the division manager rejects both projects.
b.Compute the Toddler Division's operating income and ROI, assuming that the division manager accepts only the Toy #1 project.
c.Compute the Toddler Division's operating income and ROI, assuming that the division manager accepts only the Toy #2 project.
d.Compute the Toddler Division's operating income and ROI, assuming that the division manager accepts both projects.(Round all computations to the nearest two decimal places.)

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Definitions:

Owners' Equity

The residual interest in the assets of a company after deducting its liabilities, representing the ownership's stake.

Cash Dividends

Payments made by a corporation to its shareholders, usually as a distribution of profits.

Initial Investment

The amount of money used to start a venture, purchase assets, or establish the financial foundation of a business.

Asset

An item of value owned by an individual or corporation, expected to provide future benefits or value.