Advance Management accounting Question:

Question 4 The divisional manager of a division in A&B Co. is in the midst of proposing a capital budget for 2021. Projects 1 - 4 below, all of which have equal risk are being considered: | Project 1 Investment cost (RM) 4,750,000 Returns (RM) 1.250,000 Project 2 1.950.000 650.000 Project 3 400,000 64.000 Project 4 900,000 270,000 The company has a cost of capital of 15%. Since there are limited funds, only a total of RM8,000,000 is available to the division for investment purposes. Required: (a) If the company's policy states that all accepted projects must promise a return on investment of at least 20%: (1) Calculate the total combined investment cost and total combined return based on the budget limit and this policy requirement. (3 marks) (i)Using your computations in part (a)(1), calculate the return on investment and the residual income of the division manager. (2 marks) (b) If the division manager is expected to maximise residual income as computed by using the 15% cost of capital: (1) Calculate the total combined investment cost and total combined retum based on the budget limit and this requirement. (3 marks) (1) Using your computations in part (b)(), calculate the return on investment and the residual income of the division manager. (2 marks) (c) Which of the two approaches, (a) or (b), will induce the most effective investment policy for the company? Explain (5 marks) (d)In additional to financial measures, non-financial measures are often critical to the long- term success of any organisation. Discuss TWO (2) points on how the Balanced Scorecard may provide a more suitable basis for effective appraisal of divisional management performance. Discuss also TWO (2) benefits of tying staff compensation to performance measures such as to those in the Balanced Scorecard. (10 marks) [Total: 25 Marks)