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Question 5 [25 Marks! The OakTree Group is a 75-year old company founded in Hong Kong. The Group comprises of two major businesses: a publishing business known as Fainnont Publishing and an insurance business named Generalife. The Group is currently organized in a decentralized manner with two businesses running as investment centers. However, with the recent retirement of many senior staff in OakTree, the CEO is very much concerned regarding the performance of the company under a new generation of leadership. In fact, the CEO is considering the possibility of restructuring the Group into a centralized structure. Fainnont Publishing is organized as a divisional structure with the presence of two divisions: Printed Media and Online Media. The following are summary nancial information for 2019 and 2020: Printed Media Online Media 2019 2020 2020 Sales $18 900 $26 880 scam expenses $5,590 $8,564 Current assets $5 670 $6 600 $4 050 $4 250 Cost of oods sold $8 530 $17 644 Fixed assets $12,810 $13,980 $7,290 $8,350 Current liabilities $5,380 $5,530 $4,350 $4,460 Cost of Ca ital 16% 16% 13% 13% Required rate ofreturn 15% 15% 15% 15% Tax Rate 40% 40% 40% 40% Note: AH dollargures are in thousand dollars. According to Fainnont's policy, the divisional managers' bonuses are solely based on divisional ROI. If a division reports an increase in ROI om previous year, its management is automatically eligible for a bonus; however, the management of a division reporting a decline in ROI has to present an explanation to the senior management of the Group and is unlikely to get any bonus. Manager of the Printed Media division, Sam Chan, is consideling a proposal to invest $800,000 in a new digital imagining and printing system for Year 2021. Sam believes that the new state-of-the-art system will increase the divisional operating income by $120,000. Generalife spends considerable resources on processing claims. Short, accurate processing is desirable because both customers and the company benet by resolving claims satisfactorily and by using minimum resources to do so. To improve its insurance claims processing, Generalife began a pilot project in its Kolwoon claims ofce to track the time to process each new automobile loss claim during a recent quarter. Processing time begins when a company representative receives a claim and ends when the nal settlement is reached. Following are time data related to processing these claims at the company's Kowloon ofce. Average 13-Hour Days Spent in Days to Processing by Waiting for Waiting for Revision and Complete Percent Number Adjusters Adjusters Information Corrections 0-10 4% 11.520 0.25 3.5 4.1 0.12 11-20 10% 28.800 0.34 8.1 10.1 0.11 21-30 30% 86,400 0.65 9.4 15.2 0.15 31-40 24% 69,120 1.3 9.1 25.6 0.28 41 -50 19% 54.720 2.4 1 1.9 31.4 0.44 51-60 8% 23,040 2.9 12.3 38.2 0.88 > 60 5% 14 400 3.1 11.5 49.7 2.6 Required: Evaluate the divisional managers' performance based on Fairmont's current performance evaluation criteria. Also discuss the area of improvement for both divisions. (Word limit: 100 exclude supporting computations) (2 marks) Would Sam be keen to accept the investment proposal for the new digital imaging and printing system? Explain with supporting computations. (Word limit: 50 exclude supporting computations) (5 marks) Senior management is also considering residual income as a performance measure. Comment on the performance on the two divisions based on residual income. (Word limit: 50 exclude supporting computations) (5 marks) Senior management is concerned that solely focus on ROI in measuring divisional performance could have an adverse long-run effect on Fainnont Publishing's customers. What other measurement, if any, would you recommend Fairmont to use? Explain. (Word limit: 100) (5 marks) Evaluate the efciency of the Kowloon claims ofce of Generalife as to it's automobile loss claims process. Show supporting computations where necessary. (Word limit: 50 exclude supporting computations) (5 marks) What recommendation(s) would you offer to Generalife to improve the efciency of Kowloon claims ofce in processing automobile loss claims. (Word limit: 50)