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Beng Ho Ltd (BHL) has three divisions. Each division's required rate of return is 12%. Planned operating results for 2022 are as follows: Division ABC
Beng Ho Ltd (BHL) has three divisions. Each division's required rate of return is 12%. Planned operating results for 2022 are as follows: Division ABC Operating income $12,000,000 $22,000,000 $10,000,000 Investment $100,000,000 $120,000,000 $ 50,000,000 The company is planning an expansion, which will require each division to increase its investments by $20,000,000 and its income by $4,000,000. Required: a. Compute the current ROI for each division. (3 marks) b. Compute the current residual income for each division. (3 marks) C. Rank the divisions according to their current ROIs and residual incomes. (2 marks) d. Determine the effects after adding the new project to each division's ROI and residual income. (5 marks) e. Assuming the managers are evaluated on either ROI or residual income, which divisions are pleased with the expansion and which ones are unhappy? (2 marks)
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