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The South Korean Division has an operating income of $780,000 and assets of $3.9 million. The manager of the division is contemplating whether to acquire
The South Korean Division has an operating income of $780,000 and assets of $3.9 million. The manager of the division is contemplating whether to acquire a new asset, which will cost $675,000 and will generate a contribution margin of $168,000 (before depreciation). The acquired asset will be depreciated based on the straight-line method over a useful life of six years and has no salvage value. The company's cost of capital is 15 percent. Ignore taxes. 13. (a) What is the ROI of the investment project? (b) Will the division manager invest in the project if she is evaluated based on ROI? Why? (c) Will the divisional manager make a goal congruent investment decision if she is evaluated based on division ROI? Explain briefly. 14. (a) What is the residual income generated from the investment project? (b) Will the division manager invest in the project if she is evaluated based on residual income? Why? (c) Will the divisional manager make a goal congruent investment decision if she is evaluated based on division residual income? Explain briefly
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