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QUESTION 1 Taeshan Bhd (TB) is a development and construction company. The management of TB is evaluating prospective investment decisions of its two divisions; Division
QUESTION 1 Taeshan Bhd (TB) is a development and construction company. The management of TB is evaluating prospective investment decisions of its two divisions; Division A and Division B. Each division is managed by a divisional manager who decides on all investment decisions. It is the company's policy to accept any new investment based on an average return on investment (ROI) more than 15%. The company weighted average cost of capital is 12% and the tax rate is at 24%. Information about potential investment of each division is as follows: Required capital for investment Sales generated from the investment Operating expenses Project for Division A Project for Division B RM480,000 RM1,080,000 RM300,000 RM600,000 RM210,000 RM480,000 Required: a. Decentralisation results in the creation of separate responsibility centers for which a particular manager is responsible. Explain briefly three (3) types of responsibility centers in decentralised organisations. (5 marks) b. i. Determine the most profitable investment opportunity based on return on investment (ROI). (4 marks) ii. Comment on the above investment opportunity based on Economic Value Added (EVA)
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