Alpha Division had the following information: $$\begin{array} { l r }
\text { Asset base in Alpha Division } & \$ 800,000 \
\text { Net income in Alpha Division } & \$ 100,000 \
\text { Cost of capital } & 12 \% \
\text { Target ROI } & 15 \% \
\text { Margin for Alpha Division } & 20 \%
\end{array}$$ Suppose the asset base is decreased by $200,000,with no other changes.What would be the return on investment of Alpha Division?
A) 16.7%
B) 62.5%
C) 100.0%
D) 600.0%

Question

Alpha Division had the following information: $$\begin{array} { l r } 
\text { Asset base in Alpha Division } & \$ 800,000 \
\text { Net income in Alpha Division } & \$ 100,000 \
\text { Cost of capital } & 12 \% \
\text { Target ROI } & 15 \% \
\text { Margin for Alpha Division } & 20 \%
\end{array}$$ Suppose the asset base is decreased by $200,000,with no other changes.What would be the return on investment of Alpha Division?
A) 16.7%
B) 62.5%
C) 100.0%
D) 600.0%

Quizplus · Accepted Answer

The correct answer is A because the return on investment (ROI) is calculated as net income divided by asset base. If the asset base is decreased by $200,000, the ROI will increase to 16.7%.

Alpha Division Had the Following Information Suppose the Asset Base Is Decreased by $200,000,with No Other