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Alu-Glass Sdn Bhd (AGSB) has been acknowledged as the leading glass and aluminium manufacturer in Malaysia. In manufacturing the window panes, AGSB operates three
Alu-Glass Sdn Bhd (AGSB) has been acknowledged as the leading glass and aluminium manufacturer in Malaysia. In manufacturing the window panes, AGSB operates three divisions, namely: transparent, translucent and opaque divisions. Given that the required rate of return is 15% and the budgeted operating results for the year 2021 are as follows: Operating income Investment Transparent Division RM30,000,000 RM200,000,000 Translucent Division RM50,000,000 RM250,000,000 Opaque Division RM22,000,000 RM100,000,000 During the board meeting this morning, the management planned to expand the company business for the next year, 2022. This expansion will require each division to increase its investments by RM50,000,000 and its income by RM9,000,000. REQUIRED: (a) Calculate the following amounts for each division for the year 2021 (show all workings): (i) Return on investment (ROI). (3 Marks) (ii) Residual income (RI). (3 Marks) (b) Determine the effects after adding the new project to each division's ROI and RI. Show all workings. (6 Marks) (c) If the division managers are evaluated based on ROI or RI, explain a reason on which division manager(s) is/are pleased with the expansion. (2 Marks)
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