The New Products Division of Testar Company Has Developed a Potential

question 40

Multiple Choice

The New Products Division of Testar Company has developed a potential new product that would require $8,500,000 in operating assets and would be expected to provide $1,400,000 in operating income each year.Testar has set a target return on investment (ROI) of 16% for each of its divisions.Which of the following statements is accurate?

• A) The new product is acceptable because it will yield an ROI that is higher than the target ROI and will yield residual income of $40,000.
• B) The new product will yield residual income of $45,000.
• C) The new product will decrease the companywide ROI.
• D) The new product is unacceptable because it will yield an ROI that is lower than the target ROI.