Vance Inc Requires All of Its Divisions to Maintain a Return

question 159

Essay

Vance Inc. requires all of its divisions to maintain a return on investment (ROI) of at least 45%. The manager of one of the divisions expects the division's net operating income to be $400,000 and its sales to be $2,000,000.
Required: Calculate the division's required average operating assets in order to achieve the minimum ROI.

---

Definitions:

Significance Level

A threshold set by researchers before conducting an experiment to determine at what probability level results will be considered statistically significant, commonly set at 0.05 or 5%.

Type I Error

The incorrect rejection of a true null hypothesis, also known as a "false positive" finding.

Type II Error

The error made by failing to reject a false null hypothesis, often denoted as a false negative in hypothesis testing.

Average Cost

The total cost divided by the number of goods or services produced. It represents the per unit cost of production or operation.