Glory limited has two divisions x and y. each with its own cost and revenue streams. each division is managed by a divisional manager who has the power to make all investment decisions within the division. the cost of capital for both division is 15 percent. historically, investment decisions have been made by calculating the return on investment (ROI) of any opportunities and presently the return on investment of each division is 18 percent A recently appointed manager for division x strongly feels that using residual income to make investment decisions would result in better goal congruence throughout the organization. Each division is currently considering the following separate investments: capital required for the investment division x, 88.2m and division y, 46m revenue generated from investment: division x, 46.4m and division y, 28.1m net profit margin: division x, 36% and division y, 35% required: determine both the return on investment and residual income of the new investment for each of the two divisions. comment on these results and take into consideration the Manager's views about residual income
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Glory limited has two divisions x and y. each with its own cost and revenue streams. each division is managed by a divisional manager who has the power to make all investment decisions within the division. the cost of capital for both division is 15 percent. historically, investment decisions have been made by calculating the
A recently appointed manager for division x strongly feels that using residual income to make investment decisions would result in better goal congruence throughout the organization.
Each division is currently considering the following separate investments:
capital required for the investment division x, 88.2m and division y, 46m
revenue generated from investment: division x, 46.4m and division y, 28.1m
net profit margin: division x, 36% and division y, 35%
required:
determine both the return on investment and residual income of the new investment for each of the two divisions. comment on these results and take into consideration the Manager's views about residual income
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