An investment center in Shellforth Corporation was asked toidentify three proposals for its capital budget. Details of thoseproposals 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 capitalbudgeting projects. Its minimum required return is 12 percent.
a. Assume you are the investment centermanager. Which project do you prefer? Why?
b. Assume your investment center’s current ROIis 18 percent and that the president of Shellforth is thinkingabout using ROI for the investment center’s evaluation. Would yourpreferences for the projects listed above change? Why?
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