=+10. In the face of poor operating results, the Chief Executive of a multidivisional manufacturing company called a meeting of his divisional managers. At the meeting he exhorted them to improve the profitability of their divisions du ring the coming year and announced that he would hold each manager rigorously accountable for improved performance at the year end. However, in line with company policy, each manager was given the freedom to act as he thought best for his own circumstances.

At the end of the year the results for two of the divisions gave the Chief Executive cause for concern. The summary results are given in Table 7.1, with the previous year's performance shown in brackets:

Table 7.1 Division A Division B Net operating profit f100000 (f50000) f50000 (f75 000)

Capital employed f1600000 (fl 000000) BOO 000 (f500000)

Return on capital employed 6~% (5%) 16j% (15%)

On requesting a brief explanation of their results, he received the following comments from the two managers:

Manager A: The introduction of new machinery and production facilities during the year has enabled the division to double its operating profit. Despite the increased level of investment, the return on capital employed has been considerably increased, indicating a marked improvement in overall operating efficiency.

Plans for a further modernization programme are in hand and continued improvement may be confidently expected.

Manager B: The year has seen a most successful programme involving the identification and phasing out of activities having a below average return on investment. By selling off these less profitable activities it has proved possible to increase return on investment from the already good level of 15% to a level approaching 17%. Further rationalization of this nature is planned for the coming year and a target return of 20% has been set.

Required: