Question

Dingo Division’s operating results include: controllable margin of $150,000, sales totaling $1,200,000, and average operating assets of $500,000. Dingo is considering a project with sales of $100,000, expenses of $86,000, and an investment of average operating assets of $200,000. Dingo’s required rate of return is 9%. Should Dingo accept this project? A) No, ROI will decrease to 7%. B) No, the return is less than the required rate of 9%. C) Yes, ROI still exceeds the cost of capital. D) Yes, ROI will drop by 6.6% which is still above the minimum required rate of return.

Answer 1

Answer:

b. No, the return is less than the required rate of 9%

Explanation:

Projected sale = 100000

Projected exp = 86000

Profit = 14000

Assets= 200000

Return on assets = 14000/200000 = 7%

Expected return = 9%

Hence, project should not be taken