Question
Charley's Manufacturing is a decentralized corporation. Divisions are treated as investment centers. In recent years, Charley's has been running about 11% ROI for the corporation
Charley's Manufacturing is a decentralized corporation. Divisions are treated as investment centers. In recent years, Charley's has been running about 11% ROI for the corporation as a whole, which is the minimum target for new investment. One of its most profitable divisions is Bens Products, which last year had ROA of 20% ($1,600,000 operating income on assets of $8,000,000). Bens has an opportunity to expand one of its plants to produce a promising new product. The expansion will cost two million dollars and is expected to increase operating earnings to $1,900,000. Required: What factors should Ben's manager and her supervisor, the VP of operations, consider in deciding whether to go forward with the expansion?
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