Thank you so much!

Part 1 Ceramix is a company which produces household items. The company is divided into two departments (plates and mugs), which are run as investment centres. The performance of the heads of these two departments is measured and rewarded purely on the basis of return on investment (ROI). Ceramix's cost of capital is 5% The chief executive of Ceramix has provided you with the following projections which relate to the current financial year. Plates Mugs Operating profit 223,000 65.000 Non-current assets (cost) 1,900,000 800,000 Non-current assets 1,100,000 200,000 (accumulated depreciation) Cu assets less 50,000 16. current liabilities Required: a. Calculate the return on investment for each of the two department as well as for the entire company. [6 marks] b. The head of the plates department is considering buying a new machine at the start of the next financial year, which would increase his department's contribution by 71,000. The machine would cost 600,000 and depreciate over 20 years, with an assumed resale value of zero. The machine would replace an older machine, which would be sold for 35,000. Its book value at the start of the next financial year is 30,000. If the plates department does not invest in the new machine and keeps the old one instead, the old machine would depreciate by 7,500 over the next financial year. Calculate the plates department's ROI for the next financial year assuming that it buys the new machine. Given Ceramix's performance measurement and reward regime, would you expect the head of the plates department to go ahead with the purchase? [9 marks)