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18 September, 23:48

Herb Huskie currently has an ROI of 16%, average operating assets of $1,500,000 and NOI of $240,000. The minimum required rate of return is 10%. Huskie can make an investment of $250,000 for a new project that would generate a NOI of $30,000. Using residual income, would Huskie make this investment?

a) Yes, the new project would have a ROI of 12%. b) Yes, the new project would have a ROI of 16%. c) No, the new project would have a ROI of 12%. d) No, the new project would have a ROI of 16%.

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  1. 18 September, 23:59
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    c. No, the new project would have a ROI of 12%

    Explanation:

    Given that

    NOI from new project = $30,000

    Investment for a new project = $250,000

    Using residual income the Huskie make this investment is shown below:-

    Lower than current = NOI from new project : Average operating Assets or Investments

    = $30,000 : $250,000

    = 12%

    No, the new project would have a ROI of 12%
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