5.Paula Boothe, president of thePronghornCorporation, has mandated a minimum8% return on investment for any project undertaken by the company. Given the companys decentralization, Paula leaves all investment decisions to the divisional managers as long as they anticipate a minimum rate of return of at least10%. The Energy Drinks division, under the direction of manager Martin Koch, has achieved a13% return on investment for the past three years. This year is not expected to be different from the past three. Koch has just received a proposal to invest $2,000,000in a new line of energy drinks that is expected to generate $240,000in operating income.(a)Calculate the return on investment expected on the new line of energy drinks.6.PharoahDecor sells home decor items through three distribution channelsretail stores, the Internet, and catalog sales. Each distribution channel is evaluated as an investment center. Selected results from the latest year are as follows: Retail Stores Internet Catalog Sales Sales revenue $9,420,000 $3,550,000 $3,465,000Variable expenses 3,925,000 1,369,000 1,800,000Direct fixed expenses 3,987,800 911,875 1,474,425Average assets 7,850,000 3,550,000 1,925,000Required rate of return 12% 12% 12%(a1)Calculate the margin and asset turnover for each of the three distribution channels.(a2)Calculate the ROI for each of the three distribution channels.8.SunlandDecor sells home decor items through three distribution channelsretail stores, the Internet, and catalog sales. Each distribution channel is evaluated as an investment center. Selected results from the latest year are as follows: Retail Stores Internet catalog SalesSales revenue $9,970,000 $3,920,000 $3,100,000Variable expenses 3,920,000 1,470,000 1,770,000Direct fixed expenses 4,420,000 970,000 1,170,000Average assets 7,920,000 3,920,000 1,730,000Required rate of return 11% 11% 11%(a)Calculate the current residual income for each distribution channel.(b)The corporate office is giving the managers of each channel the option of a customer relationship management system that will allow the managers to gather data about their customers and be more effective in their marketing efforts. The system will cost $770,000and is expected to generate $152,000in additional annual segment margin.Calculate the residual income of each distribution channel assuming it purchases the new customer relationship management system.9Paula Boothe, president of theBlueCorporation, has mandated a minimum9% return on investment for any project undertaken by the company. Given the companys decentralization, Paula leaves all investment decisions to the divisional managers as long as they anticipate a minimum rate of return of at least11%. The Energy Drinks division, under the direction of manager Martin Koch, has achieved a14% return on investment for the past three years. This year is not expected to be different from the past three. Koch has just received a proposal to invest $1,839,000in a new line of energy drinks that is expected to generate $333,000in operating income. Assume thatBlueCorporations actual weighted-average cost of capital is11% and its tax rate is30%.(a)Calculate the economic value added of the proposed new line of energy drinks.
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