Answer:
<h2>Forbes Division of Pitt, Inc.</h2><h3>Performance Report</h3>
by Oscar Clemente
ROI = $1,900,000/$4,500,000 x 100 = 42.222%
(Return on Investment = Operating Income/net book value of new investment x 100)
Explanation:
a) Forbes Division's Expected Income Statement at the beginning of the year: Year 1 Year 2
Sales revenue $ 16,000,000 $ 17,600,000
Operating costs:
Variable 2,000,000 2,200,000
Fixed (all cash) 7,500,000 6,750,000
Depreciation: New equipment 1,500,000 2,000,000
Other 1,250,000 1,250,000
Disposal of old equipment (loss) 3,500,000
Division operating profit $ 3,750,000 $ 1,900,000
b) Return on Investment (ROI) is a financial performance measure which evaluates the efficiency of an investment, by trying to directly measure the amount of return on a particular investment, relative to the investment's cost.
c) The Formula for ROI calculation is to subtract the initial value of the investment from the final value of the investment (which equals the net return), then dividing this new number (the net return) by the cost of the investment, and, finally, multiplying it by 100. In this Forbes Division, the operating income is taken as the difference between the initial value of the investment and the final value of the investment.
