Problem 13-40 Saved 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 company's Northeast 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 Northeast Division and the competitor: Sales Variable costs Fixed costs Invested capital Northeast Division 34,220, e 70% of sales $1,079,00 sse, Competitor $2,628, ees sex of sales $ 970, $ 300,000 Management has determined that in order to upgrade the competitor to Megatronics standards, an additional $187.500 of invested capital would be needed Required: 1. Compute the current ROI of the Northeast Division and the division's Rolf the competitors acquired 2. If d ional management is being evaluated on the basis of ROI. Will the Northeast Dision likely pursue acquisition of the competitor? 3-o. Compute the ROI of the compethor as it is now and after the intended upgrade 3-5. I ROIS used as the basis for evaluation would Megatronics Corporation likely be in favor of the acquisition of the competitor? 4. Calculate the Northeast Divisions ROI after acquisition of competitor but before upgrading 5. Assume that Megatronics uses residual income to evaluate performance and desires a 12 percent minimum return on invested Capital Compute the current residual income of the Northeast Division and the division's residual income if the competitor is acquired. 5-b.divisional management is being evaluated on the basis of residual income, will the Northeast Division likely pursue acquisition of the competitor? Complete this question by entering your answers in the tabs below. Pe 1 Red 3A Regae Rega Compute the ROI of the competitors is now and after the intended upgrade Reg SA Reg se ROEwrong Organg 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 company's Northeast 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 Northeast Division and the competitor: Sales Variable costs Fixed costs Invested capital Northeast Division $4,22e, eee O of sales $1,079, eee $ 850, Bee Competitor 32,620,000 ses of sales $ 97,200 $ 300,000 Management has determined that in order to upgrade the competitor to Megatronics standards, an additional $187,500 of invested capital would be needed. Required: 1. Compute the current ROI of the Northeast Division and the division's ROI if the competitor is acquired. 2. If disional management is being evaluated on the basis of ROI. Will the Northeast Division likely pursue acquisition of the competitor? 3-a. Compute the ROI of the competitor as it is now and after the intended upgrade 3-b. I ROI is used as the basis for evaluation, would Megatronics Corporation likely be in favor of the acquisition of the competitor? 4. Calculate the Northeast DISION's ROI after acquisition of competitor but before upgrading 5-a. Assume that Megatronics uses residual income to evaluate performance and desires a 12 percent minimum return on invested capital. Compute the current residual income of the Northeast Division and the division's residual income if the competitoris acquired 5-b. If divisional management is being evaluated on the basis of residual income, will the Northeast Division likely pursue acquisition of the competitor? Complete this question by entering your answers in the tabs below. Reg A Reg 30 Reqs Assume that Megatronics uses residual income to evaluate performance and desires a 12 percent minimum return on invested Capital Compute the current residual income of the Northeast Division and the division's residual income the competitor is acquired. Current residual income C Reg 4 Reg 58 >
