Question

John Limited has created a new division with four investment opportunities. The firm's cost of capital is 20%. The following additional information is available: Opportunity Income Investment £'000 £'000 A 131 750 B 162 600 C 151 500 D 148 700 Required: a) Calculate the Return on investment for each project. b) Assume you are the Project Manager and you are being evaluated based on Return On Investment (ROI), select the investment opportunities you would accept where the projects are mutually exclusive. Calculate the associated ROI for the division. c) If, on the other hand, you were evaluated on Residual income (RI) basis, identify the investments you would accept. Calculate the Residual income for the division. d) Assuming you are the CEO of John Limited, identify which project you would want the division to accept. State the performance measure you would use to encourage this action.

          John Limited has created a new division with four investment opportunities. The firm's cost of capital is 20%. The following additional information is available:

Opportunity                   Income                  Investment                                           £'000                                  £'000 
A                                          131                                   750 
B                                             162                                600 
C                                             151                               500 
D                                              148                                 700 

Required: 
a) Calculate the Return on investment for each project.  
b) Assume you are the Project Manager and you are being evaluated based on Return On Investment (ROI), select the investment opportunities you would accept where the projects are mutually exclusive. Calculate the associated ROI for the division.  
c) If, on the other hand, you were evaluated on Residual income (RI) basis, identify the investments you would accept. Calculate the Residual income for the division.  
d) Assuming you are the CEO of John Limited, identify which project you would want the division to accept. State the performance measure you would use to encourage this action.

Added by Brent H.

Question

Please give Ace some feedback