The Jackson Division of Florida Motors had an operating income of $335,000 and net assets of $1,340,000. Florida Motors has a target rate of return of 12 percent. The Jackson Division has an opportunity to increase operating income by $50,000 if a $200,000 investment in assets is made.
What will Jackson's ROI and Residual Income be if the project is undertaken?
A) ROI 12 percent, Residual Income $ 50,000
B) ROI 27 percent, Residual Income $ 198,000
C) ROI 26 percent, Residual Income $ 200,000
D) ROI 25 percent, Residual Income $ 200,200

Question

Quizplus · Accepted Answer

ROI = ($335,000 + $50,000) / ($1,340,000 + 200,000) = 25%
Residual income = ($335,000 + $50,000) - [($1,340,000 + $200,000) F1F1F1S1?F1F1F10 0.12] = $200,200
Exercises

The Jackson Division of Florida Motors Had an Operating Income