question archive Megatronics corporation for a massive retailer Megatronics corporation a massive retailer of electronics products, is organized in four separate divisions The four divisional managers are evaluated at year-end, and bonuses are awarded based on ROI Last year, the company as a whole produced a 13 percent return on its investment During the past week, management of the company’s Northeast Division was approached about the possibility of buying a competitor that has decided to redirect its retail activities Northeast div Competitor Sales$8,400,000 $5,200,000 Variable costs70 % of sales 65% of sales Fixed costs$2,150,000 $1,670,000 Invested capital$1,850,000 $625,000 Management has determined that in order to upgrade the competitor to Megatronics standards, an additional $375,000 of invested capital would be needed 1 Compute the current ROI of the Northeast Division and the division’s ROI if the competitor is acquired 2 What is the likely reaction of divisional management toward the acquisition? why? 3 What is the likely reaction of Megatronics’ corporate management toward the acquisition? Why? 4 Would the division be better off if it didn’t upgrade the competitor to Megatronics standards? Show computations to support your answer 5 Assume that Megatronics uses residual income to evaluate performance and desires a 12 percent minimum return on invested capital Compute the current residual income of the Northeast Division and the division’s residual income if the competitor is acquired Will divisional management e likely to change its attitude toward the acquisition? why?
Megatronics corporation for a massive retailer Megatronics corporation a massive retailer of electronics products, is organized in four separate divisions The four divisional managers are evaluated at year-end, and bonuses are awarded based on ROI Last year, the company as a whole produced a 13 percent return on its investment During the past week, management of the company’s Northeast Division was approached about the possibility of buying a competitor that has decided to redirect its retail activities Northeast div Competitor Sales$8,400,000 $5,200,000 Variable costs70 % of sales 65% of sales Fixed costs$2,150,000 $1,670,000 Invested capital$1,850,000 $625,000 Management has determined that in order to upgrade the competitor to Megatronics standards, an additional $375,000 of invested capital would be needed 1 Compute the current ROI of the Northeast Division and the division’s ROI if the competitor is acquired 2 What is the likely reaction of divisional management toward the acquisition? why? 3 What is the likely reaction of Megatronics’ corporate management toward the acquisition? Why? 4 Would the division be better off if it didn’t upgrade the competitor to Megatronics standards? Show computations to support your answer 5 Assume that Megatronics uses residual income to evaluate performance and desires a 12 percent minimum return on invested capital Compute the current residual income of the Northeast Division and the division’s residual income if the competitor is acquired Will divisional management e likely to change its attitude toward the acquisition? why?
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Megatronics corporation for a massive retailer
Megatronics corporation a massive retailer of electronics products, is organized in four separate divisions The four divisional managers are evaluated at year-end, and bonuses are awarded based on ROI Last year, the company as a whole produced a 13 percent return on its investment
During the past week, management of the company’s Northeast Division was approached about the possibility of buying a competitor that has decided to redirect its retail activities
Northeast div Competitor
Sales$8,400,000 $5,200,000
Variable costs70 % of sales 65% of
sales
Fixed costs$2,150,000 $1,670,000
Invested capital$1,850,000 $625,000
Management has determined that in order to upgrade the
competitor to Megatronics standards, an additional $375,000 of invested capital
would be needed
1 Compute the current ROI of the Northeast Division and the
division’s ROI if the competitor is acquired
2 What is the likely reaction of divisional management
toward the acquisition? why?
3 What is the likely reaction of Megatronics’ corporate
management toward the acquisition? Why?
4 Would the division be better off if it didn’t upgrade the
competitor to Megatronics standards? Show computations to support your answer
5 Assume that Megatronics uses residual income to evaluate
performance and desires a 12 percent minimum return on invested capital
Compute the current residual income of the Northeast Division and the
division’s residual income if the competitor is acquired Will divisional
management e likely to change its attitude toward the acquisition? why?
