Megatronics Corporation, a massive retailer of electronic products, is organized in four separate divisions. The four divisional managers are evaluated at year-end, and bonuses are awarded based on ROI. Last year, the company as a whole produced a 13 percent return on its investment. During the past week, management of the companys Western Division was approached about the possibility of buying a competitor that had decided to redirect its retail activities. (If the competitor is acquired, it will be acquired at its book value.) The data that follow relate to recent performance of the Western Division and the competitor:

Management has determined that in order to upgrade the competitor to Megatronics standards, an additional $187,500 of invested capital would be needed.

Western Division Competitor $4,200,000 $2,600,000 Sales Variable costs 70% of sales 65% of sales 1,075,000 835,000 Fixed costs 312,500 925,000 Invested capital Management has determined that in order to upgrade the competitor to Megatronics' standards, an additional $187,500 of invested capital would be needed