Managerial Accounting- ROI, RI, EVA
The following investment opportunities are available to an investment center manager:
Project Initial Investment Annual Earnings
A $800,000 $90,000
B 100,000 20,000
C 300,000 25,000
D 400,000 60,000
Required:
a. If the investment manager is currently making a return on investment of 16 percent, which project(s) would the manager want to pursue?
b. If the cost of capital is 10 percent and the annual earnings approximate cash flows excluding finance charges, which project(s) should be chosen?
c. Suppose only one project can be chosen and the annual earnings approximate cash flows excluding finance charges. Which project should be chosen?
