"I know headquarters wants us to add that new product line," said Dell Havasi, manager of Billings Company's Office Products Division "But I want to see the numbers before I make any move. Our division's return on investment (ROI) has led the company for three years, and I don't want any letdown." Billings Company is a decentralized wholesaler with five autonomous divisions. The divisions are evaluated on the basis of ROI, with year end bonuses given to the divisional managers who have the highest ROls. Operating results for the company's Office Products Division for this year are given below. The company had an overall return on investment (ROI) of 17.00\% this year (considering all divisions). Next year the Olfice Products Division has an opportunity to add a new product line that would require an additional investment that would increase average operating assets by $2,313,700. The cost and revenue characteristics of the new product line per year would be: Required: 1. Compute the Office Products Division's margin, turnover, and ROI for this year: 2. Compute the Office Products Division's margin, tumover, and ROI for the new product line by itself. 3. Compute the Olfice Products Division's margin, tumover, and ROI for next year assuming that it performs the same as this year and adds the new product line. 4. If you were in Dell Havasi's position, would you accept or reject the new product line? 5. Why do you suppose headquarters is anxious for the Offlce Products Division to add the new product line? 6. Suppose that the company's minimum required rate of retum on operating assets is 14% and that performance is evaluated using Tequired: 1. Compute the Office Products Division's margin, turnover, and ROH for this year. 2. Compute the Office Products Divislon's margin, tumover, and ROI for the new product line by ltself. 3. Compute the Office Products Divislon's margin, tumover, and ROI for next year assuming that it performs the same as this year and adds the new product lire. 4. If you were in Dell Havasi's position. would you accept or reject the new product line? 5. Why do you suppose headquarters is anxious for the Office Products Division to add the new product line? 6. Suppose that the company's minimum required rate of return on operating assets is 14% and that performance is evaluated using residual income a. Compute the Office Products Division's residual income for this year. b. Compute the Orfice Products. Division's residual income for the new product line by itself c. Compute the Office. Products Division's residual incorne for next year assuming that it performs the same as this year and adds the new product line: d. Using the residual inicome approach, If you werc in Dell Havasis position; would you accept or reject the new product line? Complete this question by entering your answers in the tabs below. 1. Compute the Office Products Division's marpin, turnover, and ROr for this year. 7. Compute the Olfice Droducts Division's margin, turnover, and RDI for the new product line by itself. 9. Compute the Office products Oiviston's margin, tumover, and ROI for next yoar assuming that it performis the sarne as this year and adds the new product line. (Do not pound intermediade calculations. Rouand your answers to 2 decimal places.)
