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16 November, 14:22

Alpha Division had the following information: Average operating asset base in Alpha Division $500,000 Operating income in Alpha Division $60,000 Cost of capital 14% Target return on investment (ROI) 16% Margin for Alpha Division 21% If the asset base is decreased by $120,000, with no other changes, what will Alpha Division's return on investment be

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  1. 16 November, 14:48
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    15.79%

    Explanation:

    Current Average operating asset = $500,000

    Decrease in asset base will make average operating asset $380,000 [500000 - 120000]

    ROI = Operating Income / New operating asset base

    =$60,000 / $380,000

    = 15.78947 ... % = 15.79%

    Hence, the correct answer is 15.79%
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