investment decisions using roi and ri note the previous problem must be completed be 1571670

Investment Decisions Using ROI and RI. (Note: the previous problem must be completed before working this problem.) Assume each division of Custom Auto Company is considering separate investment opportunities expected to yield a return of 10 percent, well above the company’s minimum required rate of return of 8 percent. Each investment opportunity will require $1,000,000 in average operating assets and yield operating income of $100,000.

Required:

a. Using the information presented in the previous problem, and the new investment proposal information presented previously, calculate each division’s overall ROI assuming the new investment is accepted.

b. Compare your results in part a to each division’s ROI prior to the new investment (calculated in the previous problem). Which division(s) will likely accept the proposal and which will likely reject the proposal using ROI as the measure? Explain.

c. Using the information presented in the previous problem, and the new investment proposal information presented previously, calculate each division’s overall RI assuming the new investment is accepted.

d. Compare your results in part c to each division’s RI prior to the new investment (calculated in the previous problem). Which division(s) will likely accept the proposal and which will likely reject the proposal using RI as the measure? Explain.

e. Assume the goal is to maximize company profit. Which measure do you think is best in deciding whether to accept a new investment proposal, ROI or RI? Explain.