Selatan Division is one of the divisions in Mega Berhad Without new investment, Selatan Division is expected to achieve operational income of RM310,000, sales of RM3 45 million and net operational assets of RM3 million in the next accounting period Selatan Division is currently considering an investment that requires additional investment of RM700,000 and increases the operational income by RM57,500 (sales increase by RM575,000) The new investment will increase beginning operational asset by RM700,000 and ending operational asset by RM500,000 Assume minimum rate of return required by Mega Berhad is 7 Required Calculate return on investment (ROI) for Selatan Division under the following circumstances without new investment with new investment If the divisional managers of Mega Berhad are evaluated and rewarded with bonuses based on ROI, will the Manager of Selatan Division accept the new investment Explain Calculate the residual income (RI) for Selatan Division under the following circumstances without new investment with new investment If the divisional managers of Mega Berhad are evaluated and rewarded with bonuses based on RI, will the Manager of Selatan Division accept the new investment Explain

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Posted on Sep 14, 2024

Selatan Division is one of the divisions in Mega Berhad. Without new investment, Selatan Division is expected to achieve operational income of RM310,000, sales of

Selatan Division is one of the divisions in Mega Berhad. Without new investment, Selatan Division is expected to achieve operational income of RM310,000, sales of RM3.45 million and net operational assets of RM3 million in the next accounting period. Selatan Division is currently considering an investment that requires additional investment of RM700,000 and increases the operational income by RM57,500 (sales increase by RM575,000). The new investment will increase beginning operational asset by RM700,000 and ending operational asset by RM500,000. Assume minimum rate of return required by Mega Berhad is 7%.

Required:

Calculate return on investment (ROI) for Selatan Division under the following circumstances:
1. without new investment.
2. with new investment.

If the divisional managers of Mega Berhad are evaluated and rewarded with bonuses based on ROI, will the Manager of Selatan Division accept the new investment? Explain.

Calculate the residual income (RI) for Selatan Division under the following circumstances:
1. without new investment.
2. with new investment.

If the divisional managers of Mega Berhad are evaluated and rewarded with bonuses based on RI, will the Manager of Selatan Division accept the new investment? Explain.