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22 June, 14:20

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?

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  1. 22 June, 14:23
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    No

    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%
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