Montgomery Ceramics, a division of Watson Corporation, has an operating income of $63,000 and total assets of $360,000. The required rate of return for the company is 9%. The company is evaluating whether it should use return on investment (ROI) or residual income (RI) as a measurement of performance for its division managers. The manager of Montgomery Ceramics has the opportunity to undertake a new project that will require an investment of $90,000. This investment would earn $9,000 for the company Read the requirements Requirement 1. What is the original return on investment (ROI) for Montgomery Ceramics before making any additional investment? First determine the formula to calculate the ROI ROL (Enter the percentage to two decimal places) The original melum on investment (ROI) for Montgomery Ceramics Requirement 2. What would the ROI be for Montgomery Ceramics if this investment opportunity were undertaken? Would the manager of the Montgomery Ceramics division want to make this investment if she were evaluated based on ROI? Why or why not? (Enter the percentage to two decimal places) # this investment opportunity were undertaken the Rol would be the manager of this division is evaluated based on Rol she want to make this investment. Investing in the new project would y the division's ROL Requirement 3. What is the rol of the investment opportunny? Would the investment be desirable from the standpoint of Watson Corporation? Why or why not? (Enter the percentage to two decimal places) The Rol of the investment opportunity to From the standpoint of Watson Corporation this investment V desirable. The ROI of the investment opportunity Watson's required rate of return Requirement 4. What would the residual nome (R) be for Mortgomery Ceramics if this investment opportunity were to be undertaken? Would the manager of the Montgomery Ceramics divis want to make this investment at the were evaluated based on RI? Ww or why not? Requirement 4. What would the residual income (RI) be for Montgomery Ceramics if this investment opportunity were to be undertaken? Would the manager of the Montgomery Ceramion divisie want to make this investment if she were evaluated based on RI? Why or why not? First determine the formula to akulate the Ri. RI (Uue parenthese or a minus sign for a negative RI) The residual income (RI) for Montgomery Ceramics if the investment opportunity were to be undertaken is the manager of the division is evaluated based on Rishe want to make this investment. The indicates that the division is earning than management's expectations Requirements. What is the Rs of the investment opportunity? Would the investment be desirable from the standpont of Watson Corporation? Why or why not? (lue parentheses or u minus om for a negative RI The Rl of the investment opportunity in From the standpoint of Wation Corporation this investment desirable. The lof the investment opportunity is meaning the investment opportunity would eam than managements are required retum Requirement. Which performance measurement method, ROI or R, promotes goal congruence? Why? Of the two performance measurement methods, Roland RI is more Skely to promote goal congruence. The Rl of the investment one is the division's RI by that amount. This would motivate both the division Manager and the company management to the investment
