Homestead Farming Company's last year sales were $6,200,000, operating income was $320,000, and the investment was $1,600,000. The cost of capital is 12%.
2.1 Calculate the company's ROI efficiency.
2.2 Calculate the company's ROI productivity.
2.3 Calculate the company's ROI.
Homestead Farming has the opportunity to buy adjoining land for $1,000,000 that will increase sales by 4,000,000 and net income by $130,000. Homestead Farming is a division of Dole Fresh Foods and Homestead's management is evaluated on ROI.
2.4 Would management make the investment?
2.5 Suppose management is evaluated on residual income. Would management make the investment?
2.6 Which decision benefits Dole Fresh Foods?