Acc400 Accounting for Decision Making: E25.5 An investment center in Shellforth Corporation

Acc400 Accounting for Decision Making
Week 5 Assignment

E25.5 Performance and ROI versus Residual Income
An investment center in Shellforth Corporation was asked to identify three proposals for its capital budget. Details of those proposals are:
Capital Budget Proposals
Capital required 80,000 50,000 150,000
Annual operating return 24,000 16,000 15,000
Shellforth uses residual income to evaluate all capital budgeting projects. Its minimum required return is 12 percent.

a. Assume you are the investment center manager. Which project do you prefer? Why?
b. Assume your investment center’s current ROI is 18 percent and that the president of Shellforth is thinking about using ROI for the investment center’s evaluation. Would your preferences for the projects listed above change? Why?
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