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(8 points) The division manager of Paint Corp. is considering the purchase of new equipment, which would modernize an aging plant. The division's current asset
(8 points) The division manager of Paint Corp. is considering the purchase of new equipment, which would modernize an aging plant. The division's current asset base is $10,000,000 and operating income equals $1,800,000. The investment in new equipment is $1,500,000 and will increase operating income by $132,000 next year. Paint Corp's required rate of return on investments is 6.0% 5. What is the division's current ROI? What is the division ROI if the new equipment is purchased? C. If the division manager is compensated on a base salary plus a bonus based on division ROI, is the manager's compensation higher or lower with the new investment? d. In this example for Paint Co. does the ROI performance measure promote goal congruence? Explain your answer based on your analysis above
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