Question 2Pert'nrn1anoe measurement {40 points) HoldUn is a holding company that has three different operatng units in the plastic industry. Pursuant to their main products. these operating:r units are called: {1) \"Buckets.\" (2] "Food containers," and (3) "Packaging." These units have full responsibility with respect to running their businesses. including the product offerings and the itwestments they make. Currently, all managers receive a base salary and a bonus. which is based on their unit's net income. You have been hired as a consultant to reeyatuate the structure of managers' incentive-compensation plans. To do so, the accountant of HoldOn provides you with the following information about current yearis performance of all three divisions: Buckets Food containers Packaging Sales tin 5) 1.250.000 1.500.000 1,000,000 Cost of goods sold tin 3] 550.000 400.000 450.000 Interest expenses (in $1 250.000 250.000 250.000 operating expenses [in 5;: 25,000 121mm sonnet} Total assets (in '3) 2.000.000 3.500.000 2.000.000 Total debt (in 33) 250,000 1.250.000 0 Total eguitv (in S] 1.250.000 2.250.000 2.000.000 Furthermore. the finance departntent informs you that the cost of debt is 15% and that the cost of equity is 7%. Note that Holdn operates in a world without taxes. 1. Based on some discussion with your colleagues, you consider moving from evaluating managers' bonus based on net income to using return on investment or residual income. Conceptually, which of these three measures (i.e., net income, return on investment and residual income) do you recommend for HoldOn's bonus structure? Substantiate your answer. Points: 10, word limit: 250. Your answer goes here. 2. Calculate and interpret all three measures (i.e., net income, return on investment and residual income) for all three operating units. Substantiate your assumptions. Points: 15, word limit: 350. Your answer goes here. 3. The manager of Packaging raised concerns about the interest expenses. Internally, interest expenses are seen as a common expense for all operating divisions. However, the manager of Packaging sees that the other operating units, Buckets and Food Containers, rely much more on external debt than does Packaging. As a result, the manager of Packaging feels that his/her unit is disproportionally charged for interest expenses. The manager of Packaging suggests to change how the interest expenses are allocated. In the current system, these expenses are divided in equal parts across all operating units. In the proposed system, these expenses ought to be allocated based on the debt of the different operating units. In how far do you (dis-)agree with the opinion of the Packaging manager? Substantiate you answer. Points: 10, word limit: 300.Your answer goes here. 4. During your presentation to HoldOn you learn that 80 percent of the $400,000 "other operating expenses " for operating unit "Packaging" is caused by an uncontrollable event. If you had known this in advance, would your answer to part I change or would you stick with your initial choice out of the three measures (i.e., net income, return on investment and residual income)? Substantiate your answer. Points: 5, word limit: 150. Your answer goes here