Dingo Division's Operating Results Include: Controllable Margin of $150000 Sales

question 127

Multiple Choice

Dingo Division's operating results include: controllable margin of $150000 sales totaling $1200000 and average operating assets of $500000. Dingo is considering a project with sales of $100000 expenses of $86000 and an investment of average operating assets of $200000. Dingo's required rate of return is 9%. Should Dingo accept this project?

• A) Yes ROI will drop by 6.6% which is still above the minimum required rate of return.
• B) No the return is less than the required rate of 9%.
• C) Yes ROI still exceeds the cost of capital.
• D) No ROI will decrease to 7%.

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Definitions:

Firm Commitment

An agreement where an underwriter guarantees to buy and sell all securities from the issuing company at an agreed-upon price.

Underwriter

A financial specialist or institution that assesses and undertakes the risk of another entity, often seen in insurance and securities issuances.

Direct Costs

Expenses that can be directly attributed to the production of goods or services, such as materials and labor.

Floatation Costs

Costs a company faces when issuing new securities, such as underwriter fees, legal charges, and registration expenses.