Growth Co has two divisions, Northern and Southern. The divisions are allowed to make their own investment decisions and they are currently considering the following separate projects:Capital requiredAdditional sales due to projectOperating profit marginCurrent return on investmentNeither Northern nor SouthernNorthern Southern$42.5m$60.2m$19.6m$28.5m42%21%If the projects are evaluated on the basis of return on investment (ROI), which division(s) would choose to go ahead with their investment(s)?O Both Northern and SouthernNorthern onlyO Southern only35%15%

Return on investment is ( profit/ cost of investment) *100. The project which will give higher…

Growth Co has two divisions, Northern and Southern. The divisions are allowed to make their own investment decisions and they are currently considering the following separate projects: Northern Southern $42.5m $60.2m. $19.6m $28.5m Capital required Additional sales due to project Operating profit margin Current return on investment f the projects are evaluated on the basis of return on investment (ROI), which division(s) would choose to go ahead with their investment(s)? Both Northern and Southern ONeither Northern nor Southern O Northern only Southern only 35% 15% 42% 21%

Growth Co has two divisions, Northern and Southern. The divisions are allowed to make their own investment decisions and they are currently considering the following separate projects: Northern Southern $42.5m $60.2m. $19.6m $28.5m Capital required Additional sales due to project Operating profit margin Current return on investment f the projects are evaluated on the basis of return on investment (ROI), which division(s) would choose to go ahead with their investment(s)? Both Northern and Southern ONeither Northern nor Southern O Northern only Southern only 35% 15% 42% 21%

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 15P

See similar textbooks

Similar questions

Growth Co has two divisions, Northern and Southern. The divisions are allowed to make their own investment decisions and they are currently considering the following separate projects: Capital required Additional sales due to project Northern $42.5m $19.6m 35% 15% Southern $60.2m $28.5m Operating profit margin 42% 21% Current return on investment If the projects are evaluated on the basis of return on investment, which division(s) would choose to go ahead with their investment(s)? Northern only Neither Northern nor Southern Both Northern and Southern Southern only
Carter Company is considering three investment opportunities with the following accounting rates of return: Project Y Project X 13.25% Project Z 10.47% ARR 6.58% Use the decision rule for ARR to rank the projects from most desirable to least desirable. Carter Company's required rate of return is 8%. (1 = most desriable and 3= least desirable. Select whether each project should be accepted or rejected.) C Rank Accept/Reject Project X Project Y Project Z @ # * $ IOL 4 % 2 6 4 & 7 4 8 ( 9 ➤W O
A company is considering two alternative investment projects both of which have a positive net present value. The projects have been ranked on the basis of both net present value (NPV) and internal rate of return (IRR). The result of the ranking is shown below: Project A Project B NPV 1st 2nd IRR 2nd 1st Discuss any four (4) potential reasons why the conflict between the NPV and IRR ranking may have arisen B. Kumi Ltd is considering an investment in a project, which requires immediate payment of GHS15,000, followed by a further investment of GHS5,400 at the end of the first year. The subsequent return phase net cash inflows are expected to arise at the end of the following years: Year 1 2 3 4 5 Cash inflow (GHS) 6,500 7,750 5,750 4,750 3,750 You are required to estimate the internal rate of return of this project assuming the company’s cost of capital of 16%.
Shalom Company provided the following data pertaining to its Peace Department: Margin on sales Minimum required rate of return Return on investment Turnover Average operating assets Sales 10% 18% 25% 2.50 40,000 100,000 Suppose you were presented Project Piss that has ROI of 22% and residual income of P1,900. Will Peace Department consider accepting the project? Yes or no? Use the underlined words as your choice. Input answers in capital letters.
The Magellan Division of Global Corporation, which has income of $250,000 and an asset investment of $1,562,500, is studying an investment opportunity that will cost $450,000 and yield a profit of $67,500. Assuming that Global uses an imputed interest charge of 14%, would the investment be attractive to:1—Divisional management if ROI is used to evaluate divisional performance?2—Divisional management if residual income (RI) is used to evaluate divisional performance?3—The management of Global Corporation? Attractive to Magellan: ROI Attractive to Magellan: RI Attractive to Global a. Yes; Yes; Yes b. Yes; No; Yes c. No; Yes; Yes d. No; No; No
A company is considering two alternative investment projects both of which have a positive net present value. The projects have been ranked on the basis of both net present value (NPV) and internal rate of return (IRR). The result of the ranking is shown below: Project A Project B NPV 1st 2nd IRR 2nd 1stDiscuss any four (4) potential reasons why the conflict between the NPV and IRR ranking may have arisen.
points) possible S Carter Company is considering three investment opportunities with the following accounting rates of return: Project X Project Y Project Z ARR 13.25% 6.58% 10,47% Use the decision rule for ARR to rank the projects from most desirable to least desirable. Carter Company's required rate of return is 8%. (1 = most desriable and 3 = least desirable. Select whether each should be accepted or rejected.) Project Rank Accept/Reject 4 deler "k I % 1 2 3 4 5 6 QWERT A trl Project X Project Y Project Z caps lock shift t fn اب 2 @ Z # S $ alt الالالا C V G & Y B hp 7 H N 8 144 ( 9 ا۔ K M U O O P > ie alt ? 7 4 J backspace pause ctri <
All parts are under one question, per your policy all parts can be answered. 3. Analysis of an expansion project Companies invest in expansion projects with the expectation of increasing the earnings of its business. Consider the case of Yeatman Co.: Yeatman Co. is considering an investment that will have the following sales, variable costs, and fixed operating costs: Year 1 Year 2 Year 3 Year 4 Unit sales 3,000 3,250 3,300 3,400 Sales price $17.25 $17.33 $17.45 $18.24 Variable cost per unit $8.88 $8.92 $9.03 $9.06 Fixed operating costs $12,500 $13,000 $13,220 $13,250 This project will require an investment of $15,000 in new equipment. Under the new tax law, the equipment is eligible for 100% bonus deprecation at t = 0, so it will be fully depreciated at the time of purchase. The equipment will have no salvage value at the end of the project’s four-year life. Yeatman pays a constant tax rate of 25%, and it has a weighted average cost of…
(Question 6) Imelda corporation is considering an investment opportunity. The following information was provided on several investment portfolio opportunity based on their past performance. Project Marine 125,400 63,200 252,800 10 Project Air 185,400 80,066 326,800 Project Hill Sales (RM) Contribution margin (RM) Operating assets (RM) Minimum required rate of return (%) 220,400 142,076 645,800 15 12 The fixed expenses recorded on each project is equivalent to 10% on the value of their operating assets. Required: (a) Calculate the Return on Investment (ROI) for each of the portfolio. (b) Based on the required rate of return, determine the Residual Income (RI) for each of the portfolio.
All the parts are under one questions and per your policy can be answered in full. 3. Analysis of an expansion project Companies invest in expansion projects with the expectation of increasing the earnings of its business. Consider the case of Garida Co.: Garida Co. is considering an investment that will have the following sales, variable costs, and fixed operating costs: Year 1 Year 2 Year 3 Year 4 Unit sales 4,800 5,100 5,000 5,120 Sales price $22.33 $23.45 $23.85 $24.45 Variable cost per unit $9.45 $10.85 $11.95 $12.00 Fixed operating costs $32,500 $33,450 $34,950 $34,875 This project will require an investment of $20,000 in new equipment. Under the new tax law, the equipment is eligible for 100% bonus deprecation at t = 0, so it will be fully depreciated at the time of purchase. The equipment will have no salvage value at the end of the project’s four-year life. Garida pays a constant tax rate of 25%, and it has a weighted average cost of…
IRR and NPV approaches Hotel Amazing is attempting to select the best of a group of independent projects competing for the firm's fixed capital budget of $5.5 million. Management recognizes that any unused portion of this budget will earn less than the 12% cost of capital, thereby resulting in a present value of inflows that is less than the initial investment. A summary of the independent projects are shown in the following table. see image for table a) Use the internal rate of return (IRR) approach to select the best group of projects. b) Use the net present value ( NPV) approach to select the best group of projects. c) Are the projects selected in parts a and b the same? Explain your answer. d) Which projects should Hotel Amazing implement? Why? Fast answer
Required Information [The following Information applies to the questions displayed below.] Megamart provides the following Information on its two Investment centers. Investment Center Electronics Sporting goods Sales $ 63,460,000 19,050,000 1. Compute return on Investment for each center. Using return on investment, which center is most efficient at using assets to generate Income? 2. Assume a target Income of 12% of average assets. Compute residual income for each center. Which center generated the most residual Income? 3. Assume the Electronics center is presented with a new Investment opportunity that will yield a 14% return on Investment. Should the new Investment opportunity be accepted? The target return is 12%. Complete this question by entering your answers in the tabs below. Numerator: Required 1 Required 2 Required 3 Compute return on investment for each center. Using return on investment, which center is most efficient at using assets to generate income? Income $ 3,173,000…