ACCT 2302 Managerial Accounting Chapter 22 Ex 22-8

Exercise 22-8 Computing return on assets and residual income; investing decision LO A1

Megamart, a retailer of consumer goods, provides the following information on two of its departments (each considered an investment center).Investment Center Sales NetIncomeAverageInvested Assets  Electronics$10,000,000$442,500$2,950,000   Sporting goods 8,600,000 896,000 5,600,000 1.1Compute return on investment for each department. 1.2Using return on investment, which department is most efficient at using assets to generate returns for the company? [removed]Sporting goods[removed]Electronics 2.1Assume a target income level of 12.9% of average invested assets. Compute residual income for each department.  2.2Which department generated the most residual income for the company? [removed]Sporting goods[removed]Electronics 3.Assume that the Electronics department is presented with a new investment opportunity that will yield a 15.6% return on assets. Should the new investment opportunity be accepted? [removed]No, the new investment opportunity should not be accepted[removed]Yes, the new investment opportunity should be accepted