Question

Alpha Division had the following information: Average operating asset base in Alpha Division $500,000 Operating income in Alpha Division $60,000 Cost of capital 14% Target return on investment (ROI) 16% Margin for Alpha Division 21% If the asset base is decreased by $120,000, with no other changes, what will Alpha Division's return on investment be

Answer 1

Answer:

15.79%

Explanation:

Current Average operating asset = $500,000

Decrease in asset base will make average operating asset $380,000 [500000 - 120000]

ROI = Operating Income / New operating asset base

=$60,000 / $380,000

= 15.78947...% = 15.79%

Hence, the correct answer is 15.79%