Format Painter Undo Clipboard Font I C12 VXV fx A 1 Problem 2A: Evaluating Decentralized Operations (15+2) B 2 Sonic Inc. has reported the following information for its Home and Commercial Divisions: Alignment C D E F 3 Sales: 5 Invested assets: 6 Total costs and operating expenses: 7 Minimum rate of return of the whole company: Home Division Commercial Division $3,000,000 7000000 $1,250,000 4900000 $2,400,000 5700000 Profit margin Inc Investment turnove = 15% 15% ROI Income from Relevant formula 8 9 Required: = Dupont ROI formula Residual income = Minimum desired in 10 a) Determine the following for both the Divisions: 11 ) Income from operation: Home Division Commercial Division $1,850,000 $6,200,000 return 13 ) Investment turnover 12 ) Profit Margin 14 iv) Return on Investment (ROI) using DuPont formula 15 ) Residual Income 16 17 b) Which division is more efficient in generating revenue and why? 18 19 20 21 Problem 2B (8+4) 22 Sonic has offered a new investment project to the Home Division. 23 The following information is provided about the new project: 24 Invested assets: 25 Expected operating income: 26 Therefore, the return on investment: 27 28 Required: $1,000,000 $250,000 25.00% 29 a) Calculate the following, If the manager of Home Division accepts the new project: 30 i) Total Operating income 31 ) Total Invested assets 32 ) The total ROI: (Total Income from Operation/Total Invested Assets) 33 iv) The total residual income of the Home Division 34 Total Home division + New project 35 30 36 b) If Sonic pays bonus using ROI as its performance evaluation tool, do you think the manager of Home division would accept the new project? 37 Why or why not? Explain your answer in the text box below by referring to the calculations for Home Division in Problem 2A and 2B. 38 39 Explanation: 40 41 42 43 44 45 46