Home Insert Page Layout Formulas Data Review View A Н Operating Income Revenues Total Assets 2016 2017 2016 2017 2016 2017 3 Print $3,720 $4,500 $18,700 $22,500 $18,200 $25,000 4 Internet 525 690 25,000 23,000 11,150 10,000 The two division managers' annual bonuses are based on division ROI (defined as operating income divided by total assets). If a division reports an increase in ROI from the previous year, its management is automati- cally eligible for a bonus; however, the management of a division reporting a decline in ROI has to present an explanation to the News Report Group board and is unlikely to get any bonus. Carol Mays, manager of the Print division, is considering a proposal to invest $2,580 million in a new computerized news reporting and printing system. It is estimated that the new system's state-of-the-art graphics and ability to quickly incorporate late-breaking news into papers will increase 2018 division operating income by $360 million. News Report Group uses a 10% required rate of return on investment for each division. 1. Use the DuPont method of profitability analysis to explain differences in 2017 ROls between the two divisions. Use 2017 total assets as the investment base. Required 2. Why might Mays be less than enthusiastic about accepting the investment proposal for the new system despite her belief in the benefits of the new technology? 3. John Mendenhall, CEO of News Report Group, is considering a proposal to base division executive compensation on division RI. a. Compute the 2017 RI of each division. b. Would adoption of an RI measure reduce Mays's reluctance to adopt the new computerized system investment proposal? 4. Mendenhall is concerned that the focus on annual ROI could have an adverse long-run effect on News Report Group's customers. What other measurements, if any, do you recommend that Mendenhall use? Explain briefly. 2.
Home Insert Page Layout Formulas Data Review View A Н Operating Income Revenues Total Assets 2016 2017 2016 2017 2016 2017 3 Print $3,720 $4,500 $18,700 $22,500 $18,200 $25,000 4 Internet 525 690 25,000 23,000 11,150 10,000 The two division managers' annual bonuses are based on division ROI (defined as operating income divided by total assets). If a division reports an increase in ROI from the previous year, its management is automati- cally eligible for a bonus; however, the management of a division reporting a decline in ROI has to present an explanation to the News Report Group board and is unlikely to get any bonus. Carol Mays, manager of the Print division, is considering a proposal to invest $2,580 million in a new computerized news reporting and printing system. It is estimated that the new system's state-of-the-art graphics and ability to quickly incorporate late-breaking news into papers will increase 2018 division operating income by $360 million. News Report Group uses a 10% required rate of return on investment for each division. 1. Use the DuPont method of profitability analysis to explain differences in 2017 ROls between the two divisions. Use 2017 total assets as the investment base. Required 2. Why might Mays be less than enthusiastic about accepting the investment proposal for the new system despite her belief in the benefits of the new technology? 3. John Mendenhall, CEO of News Report Group, is considering a proposal to base division executive compensation on division RI. a. Compute the 2017 RI of each division. b. Would adoption of an RI measure reduce Mays's reluctance to adopt the new computerized system investment proposal? 4. Mendenhall is concerned that the focus on annual ROI could have an adverse long-run effect on News Report Group's customers. What other measurements, if any, do you recommend that Mendenhall use? Explain briefly. 2.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
ROI, RI, DuPont method, investment decisions, balanced scorecard. News Report Group has two major divisions: Print and Internet. Summary nancial data (in millions) for 2016 and 2017 are as follows:
Transcribed Image Text:Home
Insert
Page Layout
Formulas
Data
Review
View
A
Н
Operating Income
Revenues
Total Assets
2016
2017
2016
2017
2016
2017
3 Print
$3,720
$4,500
$18,700 $22,500
$18,200 $25,000
4 Internet
525
690
25,000
23,000
11,150
10,000
The two division managers' annual bonuses are based on division ROI (defined as operating income divided
by total assets). If a division reports an increase in ROI from the previous year, its management is automati-
cally eligible for a bonus; however, the management of a division reporting a decline in ROI has to present
an explanation to the News Report Group board and is unlikely to get any bonus.
Carol Mays, manager of the Print division, is considering a proposal to invest $2,580 million in a new
computerized news reporting and printing system. It is estimated that the new system's state-of-the-art
graphics and ability to quickly incorporate late-breaking news into papers will increase 2018 division
operating income by $360 million. News Report Group uses a 10% required rate of return on investment
for each division.
1. Use the DuPont method of profitability analysis to explain differences in 2017 ROls between the two
divisions. Use 2017 total assets as the investment base.
Required
2. Why might Mays be less than enthusiastic about accepting the investment proposal for the new system
despite her belief in the benefits of the new technology?
3. John Mendenhall, CEO of News Report Group, is considering a proposal to base division executive
compensation on division RI.
a. Compute the 2017 RI of each division.
b. Would adoption of an RI measure reduce Mays's reluctance to adopt the new computerized
system investment proposal?
4. Mendenhall is concerned that the focus on annual ROI could have an adverse long-run effect on News
Report Group's customers. What other measurements, if any, do you recommend that Mendenhall use?
Explain briefly.
2.
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