Compute the new ROI and residual income for each division

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Question - Wescott Company has three divisions: A, B, and C. The company has a hurdle rate of 8 percent. Selected operating data for the three divisions are as follows:

 

Division A

Division B

Division C

Sales revenue

$1,255,000

$920,000

$898,000

Cost of goods sold

776,000

675,000

652,000

Miscellaneous operating expenses

64,000

52,000

53,100

Interest and taxes

48,000

41,000

41,500

Average invested assets

8,300,000

1,930,000

3,215,000

Wescott is considering an expansion project in the upcoming year that will cost $5 million and return $450,000 per year. The project would be implemented by only one of the three divisions.

How do you compute the new ROI and residual income for each division if the project was implemented within that division?

Reference no: EM132480524

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