Standard Media has a required rate of return of 5 percent, a cost of capital of 4 percent, and an income tax rate of 30 percent.The following information about its two divisions has been provided by management: $\begin{array}{lrr}&\text { Audio Division}&\text { Video Division }\
\text { NOPAT } & \$ 1,400,000 & \$ 2,000,000 \
\text { Sales } & \$ 10,000,000 & \$ 12,500,000 \
\text { Invested capital } & \$ 15,000,000 & \$ 17,500,000
\end{array}$ An opportunity is available that yields an expected income of $45,900 on an investment of $450,000.If the divisions are evaluated based on return on investment, which division(s) will accept the opportunity?
A)Both will accept.
B)Neither will accept.
C)Only the Video Division will accept.
D)Only the Audio division will accept.

Question

Standard Media has a required rate of return of 5 percent, a cost of capital of 4 percent, and an income tax rate of 30 percent.The following information about its two divisions has been provided by management: $\begin{array}{lrr}&\text { Audio Division}&\text {  Video Division }\
\text { NOPAT } & \$ 1,400,000 & \$ 2,000,000 \
\text { Sales } & \$ 10,000,000 & \$ 12,500,000 \
\text { Invested capital } & \$ 15,000,000 & \$ 17,500,000
\end{array}$ An opportunity is available that yields an expected income of $45,900 on an investment of $450,000.If the divisions are evaluated based on return on investment, which division(s) will accept the opportunity?
A)Both will accept.
B)Neither will accept.
C)Only the Video Division will accept.
D)Only the Audio division will accept.

Quizplus · Accepted Answer

The Answer of Standard Media has a required rate of return of 5 percent, a cost of capital of 4 percent, and an income tax rate of 30 percent.The following information about its two divisions has been provided by management: $\begin{array}{lrr}&\text { Audio Division}&\text {  Video Division }\
\text { NOPAT } & \$ 1,400,000 & \$ 2,000,000 \
\text { Sales } & \$ 10,000,000 & \$ 12,500,000 \
\text { Invested capital } & \$ 15,000,000 & \$ 17,500,000
\end{array}$ An opportunity is available that yields an expected income of $45,900 on an investment of $450,000.If the divisions are evaluated based on return on investment, which division(s) will accept the opportunity?
A)Both will accept.
B)Neither will accept.
C)Only the Video Division will accept.
D)Only the Audio division will accept.

Standard Media Has a Required Rate of Return of 5