The NT Group has two major divisions:

a) Newspapers owns four leading newspapers on four continents

b) Television owns three major networks on three continents

The summary financial data are as follows:-

Required:-

a) Prior to the Newspaper Divisions proposal on new printing presses, calculate the ROI of each of the divisions and comment on the trend over the two years.

b) Critically appraise the use of ROI as a measure of performance.

c) The Chairman of the NT Group wants to implement Economic Added Value as a financial performance measure instead of what the terms as the out-dated ROI. Compute the EVA for each division and critically appraise the appropriateness of such a measure as a means of addressing the requirements of the shareholder.

d) Why might Joseph Yang be less enthusiastic about the fast-speed printing press investment proposal if her bonus is dependent upon ROI increases? What impact would the adoption of EVA have on the proposal for new fast-speed printing presses?

Operating Income Revenues Total Assets 20X1 20X2 Division 20X1 20X2 20X1 20X2 m m m m Em Newspapers 900 1.100 4,500 4,600 4,400 4,900 Television 130 160 6,000 6,400 2,700 3,000 Division managers have an annual bonus plan based on Divisional ROI. Senior executives from divisions reporting increases in ROI from prior years are automatically eligible for a bonus. Senior executives of divisions reporting a decline in the division ROI have to provide a very persuasive argument to be eligible for a limited bonus. Joseph Yang the manager of the Newspaper Division is considering a proposal to invest 200 million in fast-speed printing presses with colour print options. She estimated that these printing presses will add an additional 30 million to the division's operating profits. (Show the impact of this proposal on the 20x2 figures) The NT Group has a cost of capital of 12%