Version L Page 1 of 3 Group Project Part B Instructions General Instructions for Part B The second part of the project involves the analysis of a case study. Each group will be given a different scenario to analyze. Your group must analyze the case you have been presented and in a 1-2 page written report answering the 5 questions posed in the scenario. Please note - each scenario asks different questions, be sure to read your group's questions carefully. Please keep your answers to each question brief and concise. Be sure to back up your answers with evidence from the documents provided in the scenario. Scenario L Mr. Norman is the Western Region Manager of MNO Canada Limited which is a subsidiary of a publicly traded Canadian firm that is traded on a major stock exchange. The parent company has responsivity for all capital expenditure decisions of the subsidiary, and can dictate if the subsidiary must discontinue operations in a market segment and sell the associated assets used in this segment. During 2019 the parent company told the subsidiary that it must discontinue product XYZ and late in 2019 MNO discontinued the production and sales of product XYZ. Specific assets held for disposition and not used in 2020 total have gross value of $41,667. All entities are evaluated on the return on the assets invested and the required return must be at least 10% in order to earn annual bonuses which are scaled up as the ROI increases above the 10% required return. For purposes of ROI, fixed assets are valued at gross value and not net value. On the next pages you see condensed summary financial statements for MNO for the year ended December 31, 2020 and a proposed capital expenditure. Version L Page 2 of 3 Questions for This Scenario 1. Comment on the appropriate return on investment calculation for Mr. Norman and calculate the amount to 1 decimal place. 2. Comment on the appropriate return on investment calculation for MNO Limited and calculate the amount to 1 decimal place. 3. Comment on the appropriate return on investment calculation for the publicly traded Canadian firm and calculate the amount to 1 decimal place. 4. Would Mr. Norman be motivated to make the capital investment at the present time? BRIEFLY justify your answer. 5. Do you think the bonus system suits the shareholders best interests? BRIEFLY justify your answer. Financial Statements MNO Canada Limited Balance Sheet as at December 31, 2020 Item $ Current assets $40,500 Non-current assets 94,500 Total assets $135,000 Current liabilities $22,950 Long term debt 67,500 Equity 44,550 Total liabilities and equity $135,000 Idle Assets $41,667 Required return from operations based on total 10% gross assets Version L Page 3 of 3 MNO Canada Limited Income Statement for the year ended December 31, 2020 Item $ Sales $162,000 Cost of sales 103,950 Gross Margin 58,050 Selling and Administrative 40,905 Operating income 17,145 Interest at 6% 3,645 Net Income before tax 13,500 Income tax 4,500 Net income $9,000 Capital expenditure proposed 37,500 Operating Income by year 1,500 Year 1 3,000 Year 2 4,500 Year 3 13,500 Year 4 22,500 Year 5 22,500 Year 6 22,500 Year 7 22,500 Year 8 22,500 Year 9 22,500 Year 10