Reference no: EM132973103

The manager of Broome division is considering a new investment. The following estimates have been prepared:

Broome Division

Cost of capital of the company 13%

Annual profit (before interest) £28,000

Investment £200,000

Annual sales £100,000

Current return on investment 9%

Problem 1: Which of the following statements is NOT correct?

Select one:

A. The manager will want to accept the project if divisional performance is measured using return on capital employed.

B. The manager will want to accept the project if divisional performance is measured using residual income.

C. Head office will want the manager to accept the project.

D. The manager will want to reject the project if divisional performance is measured on return on capital employed.

Problem 2: K Division has reported a profit of £57,000 on sales of £287,000. Its net assets amounted to £389,000 and its cost of capital is 14%. The division's target ROI is 20%. K division's return on investment (ROI) is:

Select one:

A. 14.00%

B. 14.65%

C. 20.00%

D. 19.86%