XYZ Company has two divisions, the logistics division and foods division. Suppose that the foods division has the opportunity to invest in two projects for the coming year. The first project is a new cheese-coated corn chip that requires additional factory space and special coating machinery. The second project is star-shaped corn chips. That project will require special extruding machinery to create the desired shapes. The outlay required for each investment, the dollar returns, and the ROI are as follows: Project I: Investment - $10,000,000, Operating income - $1,500,
XYZ Company has two divisions, the logistics division and foods division. Suppose that the foods division has the opportunity to invest in two projects for the coming year. The first project is a new cheese-coated corn chip that requires additional factory space and special coating machinery. The second project is star-shaped corn chips. That project will require special extruding machinery to create the desired shapes. The outlay required for each investment, the dollar returns, and the
Add Project I: Operating Income - $3,300,000, Operating assets - $20,000,000, ROI – 16.50%
Add Project II: Operating Income - $2,560,000, Operating assets - $14,000,000, ROI – 18.29%
Add Both I&II: Operating Income - $4,060,000, Operating assets - $24,000,000, ROI – 16.92% Maintain Status Quo: Operating Income - $1,800,000, Operating assets - $10,000,000, ROI – 18.00%.
The divisional manager chose to invest only in Project II, since it would have a favorable effect on the division’s ROI (18.29 percent which is greater than 18 percent).
REQUIRED
If Project I had not been selected, the $10,000,000 in capital is invested at 12% earning the company by how much?
a.$1,200,000
b.$1,640,000
c.$1,500,000
d.$2,200,000
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
