The Business Situation

Nass Corporation has local and international divisions, selected sales, and operating data for three local divisions of different structural engineering divisions are given as follows:

	South Division BD	North Division BD	East Division BD
Sales	1,200,000	14,000,000	25,000,000
Total costs	3,000,000	7,000,000	5,000,000
Net operating income	600,000	560,000	800,000
Ranking Minimum required rate of return	14%	10%	16%

Required:

1. Explain about Nass Corporation, and general performance and measures of divisions? (a1) 3 Marks

2. Compute the return on investment (ROI) for each division using the formula stated in terms of margin and turnover. (b1) 10 Marks

3. Compute the residual income for each division.

3. Assume that each division is presented with an investment opportunity that would yield a 15% rate of return. (c1) 5 Marks

a. If performance is being measured by ROI, which division or divisions will probably accept the opportunity? Reject? Why?

b. If performance is being measured by residual income, which division or divisions will probably accept the opportunity? Reject? Why?

Project Guidelines:

1. Two or three pages about the general performance and measures of divisions [1.5Mark]
2. Two or three pages background of the company [1.5Mark]
3. Calculations [10 Mark]
4. Conclusion and opinion [5 Mark]
5. References [2 Mark]