Purchase Solution

Textron Industries: residual income, ROI, evaluate a plant expansion opportunity

Not what you're looking for?

Ask Custom Question

Lakeesha Roberts is a successful division manager for Textron Industries. Her division's ROI currently is 22%. Roberts is evaluating a plant expansion opportunity that is expected to produce an annual income of $500,000 and require an investment of $3,000,000. The corporation's cost of capital is 12%.

a. If Roberts' performance is based on ROI, will she be inclined to make the investment? Explain.
b. Calculate the residual income for the proposed investment.
c. If Robert's performance is based on residual income, will she be inclined to make the investment? Explain.
d. Would corporate management encourage Roberts to make the investment? Explain.

Purchase this Solution
Solution Summary

With calculations and narrative, the solution provides good answers to the questions.

Solution Preview

a. If Robert's performance is based on ROI, will she be inclined to make the investment? Explain.
In the project, PV = initial investment = -$3,000,000
The annual return is $500,000
Then the ROI of the project is 500K/3000K = 16.7%
Since it is lower than the division's ROI, she ...

Purchase this Solution
Free BrainMass Quizzes
Transformational Leadership

This quiz covers the topic of transformational leadership. Specifically, this quiz covers the theories proposed by James MacGregor Burns and Bernard Bass. Students familiar with transformational leadership should easily be able to answer the questions detailed below.

Cost Concepts: Analyzing Costs in Managerial Accounting

This quiz gives students the opportunity to assess their knowledge of cost concepts used in managerial accounting such as opportunity costs, marginal costs, relevant costs and the benefits and relationships that derive from them.

Operations Management

This quiz tests a student's knowledge about Operations Management

Accounting: Statement of Cash flows

This quiz tests your knowledge of the components of the statements of cash flows and the methods used to determine cash flows.

Learning Lean

This quiz will help you understand the basic concepts of Lean.

View More Free Quizzes
Related BrainMass Solutions

  • ROI and Performance Issues

    He is evaluating a plant expansion opportunity that is expected to produce an annual income of $500,000 and require an investment of $3,000,000. The corporation's cost of capital is 12%. a.

  • ROI and residual income

    Residual income. 2. Would the management of Douglas Steel Division have been more likely to accept the investment opportunity it had last year if residual income were used as a performance measure instead of ROI? Explain. 3.

  • Financial Analysis Problem of Acme

    When residual income is used to measure managerial performance, the objective is to maximize the total amount of residual income.? Thus Residual income takes care of capital charge or minimum required return which was missing in ROI.

  • Evaluating New Investments Using Return on Investment and Residual Income

    Division A Division B Division C Please see the attachment. The solution explains how to evaluate new investments using Using Return on Investment (ROI) and Residual Income

  • Residual Income

    214721 ROI: residual income I need help with this problem. This is a sample problem that was brought up in class. Wyalusing Industries has manufactured prefabricated houses for over 20 years.

  • ROI and Residual Income - Wyalusing Industries

    All investments are expected to earn a minimum return of 15 percent before income taxes. Fairmont's ROI has ranged from 19.3 to 22.1 % since it was acquired. Fairmont had an investment opportunity in 20x1 that had an estimated ROI of 18%.

  • Tam Burger - Menu Expansion Analysis based on Different Variables

    Assuming a 14% cost of capital, calculate residual income for both stores before and after the potential expansion.

  • GEC Corporation: Residual Income (or EVA) be better than

    477409 GEC Corporation: Residual Income (or EVA) be better than ROI? GEC corp. is a large multinational with several divisions.

  • ROI and residual income

    --If performance is being measured by residual income, would Company A be likely to accept the opportunity? Reject? Why?

View More Related Solutions