Edmonson Corporation had net operating income of $150,000 and average operating assets of $500,000. The company requires a return on investment of 19%.
Required:
a. Calculate the company's current return on investment and residual income.
b. The company is investigating an investment of $400,000 in a project that will generate annual net operating income of $78,000. What is the return on investment of the project? What is the residual income of the project? Should the company invest in this project?

Question

Quizplus · Accepted Answer

The Answer of Edmonson Corporation had net operating income of $150,000 and average operating assets of $500,000. The company requires a return on investment of 19%.
Required:
a. Calculate the company's current return on investment and residual income.
b. The company is investigating an investment of $400,000 in a project that will generate annual net operating income of $78,000. What is the return on investment of the project? What is the residual income of the project? Should the company invest in this project?

Edmonson Corporation Had Net Operating Income of $150,000 and Average