Question
You are consultant for the Gybson Guitar company. the company cuurently has a target rate of return of 10%. the company awards bonuses are based
You are consultant for the Gybson Guitar company. the company cuurently has a target rate of return of 10%. the company awards bonuses are based upon ROl increases. If ROl decreases, no bounses are earned. bonuses are a key part of executive compensation. The company has four divisions: the oldies,jazz, and classic
Total Assests | Income | |
Oldies | $1000,000 | $160,000 |
Rock | $1,500,000 | $190,000 |
Jazz | $1,300,000 | $190,000 |
Classic | $1,200,000 | $210,000 |
1. Compute the ROl and residual income for each division and for Gybson as whole( round to 6 points after the decimal)
2. An opportunity comes along for the classic division to purshase a small guitar company. The purshase will require an investment of 250,000 and wil increase income by 27,000
a. what is the new ROl for the classic department if they make the investment ( round to 6 points after the decimal)
b. What is the new Rol for the Gybson if the classic department makes the investment?
c. will the the head of the classic division make the investment if bounses are only based on increasing Rol why
d. Does the president of Gybson want the head of classic divison to make the investment why?
e. what happens to the residual income of classic if they make the investment?
f. would the head of classic divison make the investment if bounses were based upon increasing reisual income?
I would really appreciated if you used excel. Please show me you work. Thank you.,
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