Compute the mustang divisions return on investment

Reference no: EM131971958

Problem

ROI and Residual Income: Impact of a New Investment

The Mustang Division of Detroit Motors had an operating income of $900,000 and net assets of $5,000,000. Detroit Motors has a target rate of return of 16 percent.

(a) Compute the return on investment.

(b) Compute the residual income.

(c) The Mustang Division has an opportunity to increase operating income by $200,000 with an $850,000 investment in assets.

1. Compute the Mustang Division's return on investment if the project is undertaken.

2. Compute the Mustang Division's residual income if the project is undertaken.

Reference no: EM131971958

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