Scenario G Mr. Hyde is the General Manager of STU Canada Limited which is a subsidiary of a large multinational firm that is traded on a major stock exchange. The parent company has responsivity for all capital expenditure decisions of the subsidiary, and can dictate if the subsidiary must discontinue operations in a market segment and sell the associated assets used in this segment During 2019 the parent company told the subsidiary that it must discontinue product XYZ and late in 2019 STU discontinued the production and sales of product XYZ. Specific assets held for disposition and not used in 2020 total have gross value of $55,556. All entities are evaluated on the return on the assets invested and the required return must be at least 10% in order to earn annual bonuses which are scaled up as the ROI increases above the 10% required return. For purposes of ROI, fixed assets are valued at gross value and not net value. On the next pages you see condensed summary financial statements for STU for the year ended December 31, 2020 and a proposed capital expenditure. Version G Page 2 of 3

Financial Statements STU Canada Limited Balance Sheet as at December 31, 2020 Item $ Current assets $54,000 Non-current assets 126,000 Total assets $180,000 Current liabilities $30,600 Long term debt 90,000 Equity 59,400 Total liabilities and equity $180,000 Idle Assets $55,556 Required return from operations based on total 10% gross assets Version G Page 3 of 3 STU Canada Limited Income Statement for the year ended December 31, 2020 Item $ Sales $216,000 Cost of sales 138,600 Gross Margin 77,400 Selling and Administrative 54,540 Operating income 22,860 Interest at 6% 4,860 Net Income before tax 18,000 Income tax 5,900 Net income $12,100

Questions for This Scenario

1. Comment on the appropriate return on investment calculation for Mr. Hyde and calculate the amount to 1 decimal place.

2. Comment on the appropriate return on investment calculation for STU Limited and calculate the amount to 1 decimal place.