Question

Betsy Union is the Crane Company manager and her performance is evaluated by executive management based on Division ROI. The current controllable margin for Crane Company is 53000. Its current operating assets total $210000. The division is considering purchasing equipment for $40000 that will increase sales by an estimated $12000, with annual depreciation of $12000. If the equipment is purchased, what will happen to the return on investment for the division?

Answer 1

Answer:

if the equipment is purchased, The ROI will decrease by 4.04%

Explanation:

current controllable margin = 53000

current operating assets = $210000

current ROI = 53000/$210000

                    = 25.24%

then:

New ROI = 53000/250000

               =  21.2%

Therefore, if the equipment is purchased, The ROI will decrease by 4.04%