QUESTION 61 performance evaluation investment centers ROBOTICS is a wholesaler in electronics, aspiring to become market leader. The protection and expansion of market share is high on the company's agenda. The firm is divided into four divisions which are evaluated as investment centers (responsibility accounting). Each division manager is 13%. remunerated based on the ROI of his/her division. Last year, the ROI of the whole firm amounted to The 'North' division has the opportunity to acquire an important competitor. This acquisition would result in a significant increase in market share for ROBOTICS in this region. The assets of the competitor would be acquired at book value. To maintain the quality standards of ROBOTICS, a one-time investment outlay of 375 000 EUR would be necessary. After the acquisition, the structure of the income statement would remain identical (so the one-time investment has no effect on the profit structure) The 'North' division has the following data available: 'North' division Competitor Sales 5 200 000 EUR 8 400 000 EUR Variable costs 65% of sales 70% of sales Fixed costs 1 670 000 EUR 2 150 000 EUR Book value of investment 625 000 EUR 1 850 000 EUR QUESTIONS: 1. If the manager of division North is evaluated and rewarded based on ROI, will he be inclined to acquire the competitor? Is this decision in favor of the organization as a whole? 2. Suppose that ROBOTICS uses residual income instead of ROI to evaluate its investment centers. Suppose that the minimum return equals 12%. Would it change the 'North' manager opinion concerning acquisition? Explain based on calculations