Question

Benet Division of United Refinery Company's operating results include: controllable margin, $200,000; sales $2,200,000; and operating assets, $800,000. The Benet Division's ROI is 25%. Management is considering a project with sales of $100,000, variable expenses of $60,000, fixed costs of $40,000; and an asset investment of $150,000. Should management accept this new project?

Answer 1

No

Step-by-step explanation:

As we know that

Return on investment = Net income ÷ Investment

where,

Net income is

= Sales - variable expense - fixed cost

= $100,000 - $60,000 - $40,000

= $0

And, the asset investment is $150,000

So, the return on investment is

= $0 ÷ $150,000

= 0%

The required return on investment is 25%

So, the new project should not be accepted as the return on investment is 0%