=+The two division managers’ annual bonuses are based on division ROI (defined as operating profit divided by total assets). If a division reports an increase in ROI from the previous year, its management is automatically eligible for a bonus; however, the management of a division reporting a decline in ROI has to present an explanation to the board and is unlikely to get any bonus.

Janice Heap, manager of the Malaysian Division, is considering a proposal to invest $175 million in a new communications system. It is estimated that the new systems will decrease operating costs (and hence increase profits) in 2015 by $26 million.

The Gotcha Group has required rate of return of 13% on investment for each division.

Required 1 Use the DuPont method of profitability analysis to explain differences in 2014 ROIs between the two divisions. Use 2014 total assets as the investment base.