Dingo Division's operating results include: controllable margin of $150000 sales totaling $1200000 and average operating assets of $500000. Dingo is considering a project with sales of $100000 expenses of $86000 and an investment of average operating assets of $200000. Dingo's required rate of return is 9%. Should Dingo accept this project?
A) Yes ROI will drop by 6.6% which is still above the minimum required rate of return.
B) No the return is less than the required rate of 9%.
C) Yes ROI still exceeds the cost of capital.
D) No ROI will decrease to 7%.

Question

Quizplus · Accepted Answer

To determine if the project should be accepted, we need to calculate the ROI of the project and compare it to Dingo's required rate of return of 9%.

Controllable Margin = Sales - Variable Expenses
Controllable Margin = $100,000 - $86,000
Controllable Margin = $14,000

ROI = Controllable Margin / Average Operating Assets

ROI = $14,000 / $200,000
ROI = 7%

Since the ROI of the project is less than Dingo's required rate of return of 9%, the project should not be accepted. Therefore, the answer is B.

Dingo Division's Operating Results Include: Controllable Margin of $150000 Sales