Reference no: EM132667474

The manager of a division that produces kitchen appliances is considering the opportunity to invest in two independent projects. The first is a toaster and the second is a blender. Without the investments, the division will have total assets for the coming year of $14.5 million and after-tax income of $1.58 million.

The invested capital required for each investment and the expected operating incomes are as follows:

                                                       Toaster                   Blender
After-tax operating income          $33,750                $44,850
Invested capital                        375,000                345,000

Corporate headquarters will obtain its financing for the kitchen appliances division's further investments from long term debt and shares and the weighted average cost of capital is estimated to be 9 per cent.

Problem 1: Compute ROI for each investment project

Problem 1: Compute the budgeted divisional ROI for each of the following alternatives:

a. The toaster investment is made
b. The blender investment is made
c. Both investment are made
d. Neither investment is made