Kirsi Products' East Division
Not what you're looking for?
Kirsi Products is decentralized. Division bonuses are based on return on investment (ROI), and so division managers are very careful about their ROI. Operating results for the company's East Division for last year are given below when the company's overall ROI was 18%:
Sales $ 25,200,000
Variable expenses 14,000,000
Contribution margin 11,200,000
Fixed expenses 9,158,800
Net operating income $ 2,041,200
Divisional operating assets $ 5,600,000
East Division has an opportunity to add a new product line with an investment of $3,000,000 with the following expected results:
Sales $ 9,300,000
Variable expenses 65% of sales
Fixed expenses $ 2,604,000
Compute the East Division's ROI for last year and if the new product line is added.
2. If you were in the East Division's manager, would you accept or reject the new product line?
3. Why do you suppose Krisi Products is anxious for the East Division to add the new product line?
4. Suppose that Krisi Product's minimum required rate of return on operating assets is 15% and that bonuses are based on residual income.
a. Compute the East Division's residual income for last year and after the new product line is added.
b. Under these circumstances, if you were East Division's manager would you accept or reject the new product line?
Purchase this Solution
Solution Summary
Your tutorial is attached. Click in cells to see computations. Reasons are given in one sentence each.
Solution Preview
Your tutorial is attached. Click in cells to see computations.
2. If you were in Fred Halloway's position, would you accept or reject the new ...
Education
- BSc, University of Virginia
- MSc, University of Virginia
- PhD, Georgia State University
Recent Feedback
- "hey just wanted to know if you used 0% for the risk free rate and if you didn't if you could adjust it please and thank you "
- "Thank, this is more clear to me now."
- "Awesome job! "
- "ty"
- "Great Analysis, thank you so much"
Purchase this Solution
Free BrainMass Quizzes
Basic Social Media Concepts
The quiz will test your knowledge on basic social media concepts.
Managing the Older Worker
This quiz will let you know some of the basics of dealing with older workers. This is increasingly important for managers and human resource workers as many countries are facing an increase in older people in the workforce
Introduction to Finance
This quiz test introductory finance topics.
Motivation
This tests some key elements of major motivation theories.
Academic Reading and Writing: Critical Thinking
Importance of Critical Thinking