Question

The Western Division of Claremont Company had net operating income of $147,000 and average invested assets of $559,000. Claremont has a required rate of return of 14.50 percent. Western has an opportunity to increase operating income by $33,000 with a $88,000 investment in assets. Compute Western Division's return on investment and residual income currently and if it undertakes the project. (Enter your ROI answers as a percentage rounded to two decimal places, (i.e., 0.1234 should be entered as 12.34%). Round your Residual Income (Loss) answers to the nearest whole dollar.) Current Proposed Project Return on Investment (ROI) Residual Income (Loss)

Answer 1

	Current    Situation			Add: Proposed Situation		Total
a	Current Operating Income	$147,000		$33,000		$180,000
b	Average Invested assets	$559,000		$88,000		$647,000
c	Current rate of return (a/b*100)	26.3%				27.8%
d	Required rate of return	14.5%				14.5%
e	Residual income(c-d)*b	65945				86185