Questions:

a.Will the manager of the Covent Garden branch decide to renovate the interior design of the shop? Explain your answer.

b.Will the manager of the London Bridge branch decide to renovate their interior design of the shop? Explain your answer.

c.From the perspective of the Wilde Manufacturing Co. as a whole, should the Covent Garden branch renovate its interiors? Explain your answer.

d.From the perspective of the Wilde Manufacturing Co. as a whole, should the London Bridge branch renovate its interiors? Explain your answer.

e.Assuming a 20% required rate of return, if residual income, as opposed to ROI, was used to calculate the bonus of the two branch managers, would it change your answers to questions (a) to (d)?

_| |_ A Wilde Manufacturing company owns two shops, one near Covent Garden and one near London Bridge. Each one is responsible for its protability, including its investments, and the managers receive a bonus calculated using Return on investment (ROI). Another Interior Design company, has approached Wilde and offers to renovate their interior designs for better display. Each shop would need to invest 200,000 for renovation. The Wilde estimates that it would increase demand by 20%. The Covent Garden branch considers that it would increase its xed cost by 3,000 while the London Bridge branch considers that it would increase its xed cost by 1,000. The company's cost of capital is 20%. Covent Garden London Bridge Revenue 350,000 300,000 Variables cost 120,000 100,000 Fixed cost 45,000 50,000 Profit 185,000 150,000 Assets 800,000 1,000,000