Sarah Schmit, manager of the Components Division of FX Corporation, is consid¬ ering a new investment for her division. The division has an investment base of $4,000,000 and an operating income of $600,000. The new investment of $500,000 supports corporate strategy and is expected to increase operating income by $50,000 next year, an acceptable level of return from corporate headquarters' point of view.

REQUIRED

(a) What is the current return on investment (ROI) for Components Division?

(b) What will the ROI be if Sarah undertakes the new investment?

(c) Suppose Sarah's compensation consists of a salary plus a bonus proportional to her division's ROI. Is Sarah's compensation higher with or without the new investment?

(d) Suggest changes to FX Corporation's management that will better align per¬ formance evaluation and compensation with corporate goals.

(LO 4, 5)