Megamart, a retailer of consumer goods, provides the following information on two of its departments (each considered an investment center).
Investment Center Sales Net
Income Average
Invested Assets
Electronics $ 11,200,000 $ 620,500 $ 3,650,000
Sporting goods 7,500,000 882,000 4,900,000
1-a.
Compute return on investment for each department.
1-b.
Using return on investment, which department is most efficient at using assets to generate returns for the company?
2-a.
Assume a target income level of 11.9% of average invested assets. Compute residual income for each department.
2-b. Which department generated the most residual income for the company?
3.
Assume the Electronics department is presented with a new investment opportunity that will yield a 14.6% return on investment. Should the new investment opportunity be accepted?
