Megamart provides the following information on its two investment centers.

 Megamart provides the following information on its two investment centers.
 

Investment Center    Sales    Income    Average Assets
Electronics    $ 39,840,000    $ 2,988,000    $ 16,600,000
Sporting goods    25,200,000    2,142,000    12,600,000
Exercise 9-10 (Algo) Computing return on investment and residual income; investing decision LO A1
1. Compute return on investment for each center. Using return on investment, which center is most efficient at using assets to generate income?

2. Assume a target income of 11% of average assets. Compute residual income for each center. Which center generated the most residual income?

3. Assume the Electronics center is presented with a new investment opportunity that will yield a 15% return on investment. Should the new investment opportunity be accepted? The target return is 11%.

 

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