Question
Mesopotamian Materials Inc. (MMI) has two decentralized divisions (Ur and Babylon) that have decision making responsibility over the amount of resources invested in their divisions.
Mesopotamian Materials Inc. (MMI) has two decentralized divisions (Ur and Babylon) that have decision making responsibility over the amount of resources invested in their divisions. Recent financial extracts for both divisions are presented below:
Ur Babylon
Fixed assets, gross | 2,500 | 4,000 |
Accumulated depreciation | 1,500 | 1,200 |
Other assets | 500 | 750 |
Liabiities | 500 | 1,000 |
Sales | 6,750 | 7,200 |
Net Income after tax | 743 | 1,008 |
Average age of fixed assets | 15 | 5 |
MMI's weighted average cost of capital (WACC) is 11.5%. The MMI measures division performance based on the book value of net assets. The producer price index 15 years ago was 100, 116 five years ago, and currently is 125. *Net income is after tax but before interest.
UR can increase its ROI by
a. increasing product contribution margin
b. increasing sales volume
c. reducing discretionary expenses
d. al of the above
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