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Donaldson Ceramics, a division of Gammaro Corporation has an operating income of S82.000 and total assets of $410.000. The required rate of return for the
Donaldson Ceramics, a division of Gammaro Corporation has an operating income of S82.000 and total assets of $410.000. The required rate of return for the company s 9%. The company s evaluating whether it should use return on investment (ROI) or residual income (RI) as a measurement of performance for its division managers. The manager of Donaldson Ceramics has the opportunity to undertake a new project that will require an investment of $164,000. This investment would earn $21,320 for the company. Read the requirements Requirement 1. What is the original return on investment (ROI) for Donaldson Ceramics (before making any additional investment)? First determine the formula to calculate the ROI. ROI What is the original return on investment (ROI) for Donaldson Ceramics (before making any What would the ROl be for Donaldson Ceramics if this investment opportunity were undertaken? Would the manager of the Donaldson Ceramics division want to make this investment if she were evaluated based on ROI? Why or why not? What is the ROl of the investment opportunity? Would the investment be desirable from the standpoint of Gammaro Corporation? Why or why not? What would the residual income (RI) be for Donaldson Ceramics if this investment opportunity were to be undertaken? Would the manager of the Donaldson Ceramics division want to make this investment if she were evaluated based on R1? Why or why not? What is the Rl of the investment opportunity? Would the investment be desirable from the standpoint of Gammaro Corporation? Why or why not? Which performance measurement method, ROl or RI, promotes goal congruence? Why? hoose from any drop-down list and then click Check
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