Capital Investments Has Three Divisions

question 15

Essay

Capital Investments has three divisions.Each division's required rate of return is 15 percent.Planned operating results for next year are:

The company is planning an expansion requiring each division to increase its investments by $25,000,000 and its income by $4,500,000.
Required:
a.Compute the current ROI for each division.
b.Compute the current residual income for each division.
c.Rank the divisions according to their current ROIs and residual incomes.
d.Determine the effects after adding the new project to each division's ROI and residual income.
e.Which Divisions are pleased with the addition and which ones are unhappy assuming the managers are evaluated on a combination of ROI and residual income? Is a combination of ROI and residual income appropriate for the divisions?

---

Definitions:

Keywords

Specific words or phrases used to describe content or used in searches to find relevant information.

Selection Tools

Instruments and methods used by organizations to identify and choose the most suitable candidates for a position, including interviews, tests, and assessment centers.

Practical Value

The usefulness or applicability of something in real-world situations, often in terms of solving problems or achieving goals.