Question

ROI and Residual Income The following investment opportunities are available to an investment center manager: Project Initial Investment Annual Earnings A $ 800,000 $ 90,000 B 100,000 20,000 C 300,000 25,000 D 400,000 60,000 Required: a. If the investment manager is currently making a return on investment of 16 percent, which project(s) would the manager want to pursue

Answer 1

Answer:

Project B

Explanation:

The return on investment(ROI)=annual earnings on investment/initial investment

For project A,return on investment=$90,000/$800,000=11.25%

For project B,return on investment=$20,000/$100,000=20.00%

For project C,return on investment=$25,000/$300,000=8.33%

For project D,return on investment=$60,000/$400,000=15.00%

Since the investment manager is only interested in project that has at least 16% return on investment,the only project worthy of investing in is project B with return on investment of 20%

Answer 2

Answer:

B

Explanation:

ROI = Operating income / Operating assets

ROI for proejct A=$90,000/$800,000=11.25%

ROI for Project B=$20,000/$100,000=20% ROI for Project C=$25,000/$300,000=8.33% ROI for Project D=$60,000/$400,000=15%

If ROI is 16%, project B should be chosen because the ROI is greater than 16%

I hope my answer helps you