Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Required information Problem 13-40 ROI and Residual Income; Investment Evaluation (LO 13-2, 13-3, 13-4, 13-8) [The following information applies to the questions displayed below.) Megatronics

image text in transcribed

image text in transcribed

image text in transcribed

image text in transcribed

image text in transcribed

Required information Problem 13-40 ROI and Residual Income; Investment Evaluation (LO 13-2, 13-3, 13-4, 13-8) [The following information applies to the questions displayed below.) 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 14 percent return on its investment During the past week, management of the company's Western 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 Western Division and the competitor. Western Division Competitor Sales $4,250,000 $2,650,000 Variable costs sales sales Fixed costs $ 1,095,000 $ 972.000 Invested capital $1,000,000 $ 400,000 70% of 60% of Management has determined that in order to upgrade the competitor to Megatronics standards, an additional $150,000 of invested capital would be needed. Problem 13-40 Part 1 Required: 1. Compute the current ROI of the Western Division and the division's ROI if the competitor is acquired. (Round your "Percentage" answer to 2 decimal places (.e., .1234 should be entered as 12.34).) Current ROI Rol if competitor is acquired % % 2. If divisional management is being evaluated on the basis of ROI, will the Western Division likely pursue acquisition of the competitor? Yes 3-a. Compute the ROI of the competitor as it is now and after the intended upgrade. (Round your ROI to 2 decimal places (i.e., .1234 should be entered as 12.34).) ROI before upgrading ROI after upgrading % % 3-b. If ROI is used as the basis for evaluation, would Megatronics Corporation likely be in favor of the acquisition of the competitor? O No Yes, but only without upgrading O Yes, even with upgrading 4. Calculate the Western Division's ROI after acquisition of competitor but before upgrading. (Round your "Percentage" answer to 2 decimal places (ie., 1234 should be entered as 12.34).) ROI 5-a. Assume that Megatronics uses residual income to evaluate performance and desires a 10 percent minimum return on invested capital. Compute the current residual income of the Western Division and the division's residual income if the competitor is acquired. Current residual income Residual income if competitor is acquired 5-b. If divisional management is being evaluated on the basis of residual income, will the Western Division likely pursue acquisition of the competitor? Yes O NO

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Lead Auditor ISO 22000 2018 Food Safety Management Systems FSMS Course

Authors: Marius Hauta

1st Edition

B0BTSCBJ82, 979-8376159750

More Books

Students also viewed these Accounting questions