Condren Incorporated reported the following results from last year's operations: At the beginning of this year, the company has a $1,000,000 investment opportunity with the following characteristics:
If the company pursues the investment opportunity and otherwise performs the same as last year, the combined Return on investment (ROI) for the entire company will be closest to:
A) 1.1%
B) 8.6%
C) 9.7%
D) 11.3%

Question

Condren Incorporated reported the following results from last year's operations:  At the beginning of this year, the company has a $1,000,000 investment opportunity with the following characteristics:
 If the company pursues the investment opportunity and otherwise performs the same as last year, the combined Return on investment (ROI) for the entire company will be closest to:
A) 1.1% 
B) 8.6% 
C) 9.7% 
D) 11.3%

Quizplus · Accepted Answer

To calculate the ROI for the entire company after pursuing the investment opportunity, we need to add the income and investment from the new opportunity to the previous year's values:

Total income = $1,600,000 (previous year) + $970,000 (new opportunity) = $2,570,000
Total investment = $10,000,000 (previous year) + $1,000,000 (new opportunity) = $11,000,000

ROI = (total income - total investment) / total investment x 100%
ROI = ($2,570,000 - $11,000,000) / $11,000,000 x 100%
ROI = - 70%

This negative ROI suggests that the company would be better off not pursuing the investment opportunity. However, this calculation assumes that the company will otherwise perform the same as last year. If the new investment generates additional income or efficiencies in other areas of the business, the overall ROI could be higher.

Therefore, the best choice is C, 9.7%, as it is the closest to the average ROI for the previous year (9.5%). However, it should be noted that pursuing the investment opportunity may not necessarily result in this ROI and further analysis is needed to make a more informed decision.

Condren Incorporated Reported the Following Results from Last Year's Operations