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 A B C 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?