Question

Carriage Incorporated manufactures horse carriages. The company has two​ divisions, Wheels and Assembly. Because of different accounting methods and inflation​ rates, the company is considering multiple evaluation measures. The following information is provided for​ 2018: ASSETS INCOME Book Value Current value Book value Current value Wheels ​$485,000 ​$550,000 ​$130,000 ​$150,000 Assembly ​$800,000 ​$1,600,000 ​$170,000 ​$195,000 The company is currently using a​ 12% required rate of return. What are​ Wheels's and​ Assembly's return on investment based on book​ values, respectively? A. ​27%; 21% B. ​27%; 12% C. ​21%; 27% D. ​12%; 27%

Answer 1

The correct option is A, ​27%; 21%

Step-by-step explanation:

The return on investment based on book values=book value of income/book value of assets.

Wheels' return on investment:

Wheels' income based on book value is $130,000

Wheel's assets based on book value is $485,000

Wheel's return on investment=$130,000/$485,000=27%

Assembly's return on investment:

Assembly's income based on book value is $170,000

Assembly's assets based on book value is $800,000

Wheel's return on investment=$170,000/$800,000=21%

Hence the correct option is the first one