Question

Marcos Co. is considering a project that will increase residual income by $15,000. The project has a 12% return on investment (ROI) which exceeds the company's 10% required rate of return. Marcos Co. currently has an overall 15% ROI in the department where this project would be implemented. Which of the following statements regarding this potential investment are true?
a. the project should be accepted because the residual income will push the project's roi above the projected 12%.b. the project should be rejected by the company because its roi is lower than the current departmental roi.c. the department manager may not want to accept the project because it will lower the overall roi for the department.d. the project should be accepted by the company because it increases overall residual income.

Answer 1

Answer:

C.) the department manager may not want to accept the project because it will lower the overall roi for the department.

D.) the project should be accepted by the company because it increases overall residual income.

Explanation:

Project will Increase residual income by $15,000

Project ROI = 12%

Company's required rate of return = 10%

Company's current ROI in the department where project is to be implemented = 15%

The company should accept the project because the 12% Return On Investment which the project yield surpasses the 10% required rate of return outlined by the company thus increasing the company's residual income.

However, the company's current ROI in the department where the project is to be implemented is 15% which is greater than the project's ROI of 12% and this will decrease the overall residual income of the department.