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Faced with headquarters' desire to add a new product line, Stefan Grenier, manager of Bilti Products' East Division, felt that he had to see
Faced with headquarters' desire to add a new product line, Stefan Grenier, manager of Bilti Products' East Division, felt that he had to see the numbers before he made a move. His division's ROI has led the company for three years, and he doesn't want any letdown. Bilti Products is a decentralized wholesaler with four autonomous divisions. The divisions are evaluated on the basis of ROI, with year-end bonuses given to divisional managers who have the highest ROI. Operating results for the company's East Division for last year are given below: Sales Variable expenses. Contribution margin Fixed expenses Operating income Divisional operating assets $24,500,000 13,850,000 10,650,000 8,445,000 $ 2,205,000 $ 6,125,000 The company had an overall ROI of 19% last year (considering all divisions). The new product line that headquarters wants Grenier's East Division to add would require an investment of $3,500,000. The cost and revenue characteristics of the new product line per year would be as follows: Sales $10,500,000 Variable expenses Fixed expenses 70% of sales $ 2,415,000 Required: 1. Compute the East Division's ROI for last year, also compute the ROI as it would appear if the new product line were added. (Do not round intermediate calculations. Round your final answer to the nearest whole number.) Present New Line Total RO 2. If you were in Grenier's position, would you accept or reject the new product line? Accept Reject
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