Exercise 10-8. Omit part 3

Exercise 10-8 ROI and Investment Decisions Refer to Exercise 10-7 for data. At the end of Year 2, the manager of the Canned Foods Division is concerned about the division's performance. As a result, he is considering the oppor- tunity to invest in two independent projects. The first is juice boxes for elementary school chil- dren. The second is fruit and veggie pouches for kids on the go. Without the investments, the division expects that Year 2 data will remain unchanged. The expected operating incomes and the outlay required for each investment are as follows: Juice Box Fruit Pouch Operating income $ 6,250 $ 3,800 Outlay 50,000 40,000 Allard's corporate headquarters has made available up to $100,000 of capital for this divi- sion. Any funds not invested by the division will be retained by headquarters and invested to earn the company's minimum required rate of return, 9 percent. a. Required: 1. Compute the ROI for each investment. 2. Compute the divisional ROI (rounded to four significant digits) for each of the following four alternatives: The juice box is added. b. The fruit pouch is added. Both investments are added. d. Neither investment is made; the quo is maintained. Assuming that divisional managers are evaluated and rewarded on the basis of ROI per- formance, which alternative do you think the divisional manager will choose? 3. Which of the data analytic typesdescriptive, diagnostic, predictive or prescriptiveis used in determining which, if any, new investment to make? Explain. (See Exhibits 2.5 and 2.6, pp. 37, 40, for a review of data analytic types.) c. Status Exercise 10-7 ROI, Margin, Turnover Allard, Inc., presented two years of data for its Frozen Foods Division and its Canned Foods Division. Frozen Foods Division: Year 1 Sales Operating income Average operating assets $6,000,000 420,000 4,000,000 Year 2 $6,200,000 434,000 4,000,000 Canned Foods Division: Year 1 Sales Operating income Average operating assets $2,400,000 120,000 1,000,000 Year 2 $2,600,000 117,000 1,000,000 Required