Broncho Sports Enterprises The Football Division of Broncho Sports Enterprises reported the following financial data for the year:
Refer to Broncho Sports Enterprises.If the manager of the Football Division is evaluated based on return on investment,how much would she be willing to pay for an investment that promises to increase net segment income by $60,000?

Question

Broncho Sports Enterprises The Football Division of Broncho Sports Enterprises reported the following financial data for the year:
 Refer to Broncho Sports Enterprises.If the manager of the Football Division is evaluated based on return on investment,how much would she be willing to pay for an investment that promises to increase net segment income by $60,000?

Quizplus · Accepted Answer

The ROI can be calculated as Net Segment Income/Invested Capital.
ROI = $857,142/$1,500,000 = 0.5714 or 57.14%

To increase net segment income by $60,000, we need to calculate the increase in invested capital required to achieve this.
Increase in Invested Capital = Increase in net segment income/ROI
= $60,000/0.5714
= $105,000

Therefore, the manager would be willing to pay up to $105,000 for an investment that promises to increase net segment income by $60,000. 
The closest option is C, $428,572, which is more than four times the required investment. Hence, C is the best choice.

Broncho Sports Enterprises the Football Division of Broncho Sports Enterprises