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    ROI and Residual Income on Excel Worksheet

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    NP7.2 ROI and Residual Income

    Suppose that a division of a company is treated as an investment center. Its manager is currently obtaining an ROI of 15% from existing assets of $1 million. The cost of capital (corporate discount rate) is 10%. The division manager has the option of choosing among the following projects which are independent of existing operations and the other alternative projects.

    PROJECT INVESTMENT ROI
    A $100,000 14%
    B $400,000 20
    C $200,000 14
    D $300,000 12
    E $500,000 8

    A Given the current investment in existing assets in which additional projects should the division manager invest if the objective is to maximize ROI.

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    ROI and Residual Income

    Suppose that a division of a company is treated as an investment center. Its manager is currently obtaining an ROI of 15% from existing assets of $1 million. The cost of capital (corporate discount rate) is 10%. The division manager has the option ...

    Solution Summary

    This solution is comprised of a detailed explanation to answer which additional projects should the division manager invest if the objective is to maximize ROI.

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