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Al-Anwar Trading Company consists of three branches: Irbid, Zarqa and Aqaba. The branch managers are evaluated at the end of each year and bonuses
Al-Anwar Trading Company consists of three branches: Irbid, Zarqa and Aqaba. The branch managers are evaluated at the end of each year and bonuses are given based on the investment return achieved, as the company generally achieved a return of 12% on its investments. The Aqaba branch manager is studying investment in a new project to help it in the future growth of the branch, with data on the Aqaba branch and the new project. Income Invested capital Instructions: Aqaba branch new project Jd 6,400,000 Jd 2,100,000 40,000,000 15,000,000 A. Calculate the current ROI of the Aqaba branch and the new project. B. What is the possible reaction of the branch management towards the investment in the new project? Why? C. What is the possible reaction of Al-Anwar management toward the investment in the new project? Why? D. Assume that Al-Anwar uses residual income to evaluate performance and desires an 11% minimum return on invested capital. Compute the current residual income of the Aqaba branch and the branch's residual income if the investment in new project is made. Will branch management possible change its attitude toward the acquisition? Why?
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