You are hired by Sweets Company as a consultant. The company is decentralized and wants managers to operating independently as investment centers. The Companys cost of capital/minimum required rate of return is 10%. The Company has FOUR Divisions: The Candy Division, The Cookie Division, The Cake Division and The Ice Cream Division. **Bonuses are paid to managers only if ROI remains the same or increases if ROI deceases, no bonus is earned.

1. Compute the ROI and RI for each division Current Results for each Division are as follows Compute the ROI and Residual Income for each division

Division	Total assests	Income
Candy	1,000,000	120,000
Cookie	1,250,000	250,000
Cake	1,300,000	104,000
Ice Cream	980,000	205,000

An opportunity comes along for the ice cream divison to purshase a new frozen yougurt company

The purshese will require an investment of 200,000 and will increase income by 30,000

2. Compute the ROI and RI for each division and Sweets Company as a Whole

Divison	ROl	Residual Income
Candy
Cookie
Cake
Ice cream
Sweets company as whole

3. What would the ROI and Residual Income be for Sweets as a whole if the investment is made?

a. From a purely financial perspective, is this a good investment for Sweets?

b. What will be the new ROI and Residual Income for the company as a whole if the yogurt company is purchased?

c. Therefore is it a good investment for Sweets? Why or Why not?

d. What will be the new ROI and Residual Income for the Ice Cream Division if the yogurt company is purchased?

4. Based on the assumption of individuals being selfmaximizing, will the Ice Cream Division manager make the investment in the yogurt company?

5. What suggestions would you suggest the company make to insure goal congruence?

Please show how did you do it. Thank you for your time