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

Return on investment (ROI) is calculated as net segment income divided by segment assets. Using the given data, the ROI for the Football Division is 15% ($810,000 / $5,400,000). If an investment promises to increase net segment income by $60,000, the new net segment income would be $870,000. To maintain the same ROI, the segment assets would need to increase by ($870,000 / 0.15) - $5,400,000 = $428,572. Therefore, the manager would be willing to pay $428,572 for the investment. Option C is the only choice that matches this calculation.

Broncho Sports Enterprises the Football Division of Broncho Sports Enterprises