Megatronics Corporation, a massive retailer of electronic products, is organized in four separate divisions. The four divisionalmanagers are evaluated at year-end, and bonuses are awarded based on ROI. Last year, the company as a whole produced a 14percent return on Its Investment.During the past week, management of the company's Northeast Division was approached about the possibility of buying a competitorthat had decided to redirect its retall activities. (If the competitor is acquired, it will be acquired at its book value.) The data that followrelate to recent performance of the Northeast Division and the competitor:SalesVariable costsFixed costsInvested capitalNortheast Division$4,330,00070% of sales$1,101,000$ 990,000Management has determined that in order to upgrade the competitor to Megatronics' standards, an additional $240,000 of Investedcapital would be needed.Req 1Required:1. Compute the current ROI of the Northeast Division and the division's ROI if the competitor is acquired.2. If divisional management is being evaluated on the basis of ROI, will the Northeast Division likely pursue acquisition of thecompetitor?Req 23-a. Compute the ROI of the competitor as it is now and after the intended upgrade.3-b. If ROI is used as the basis for evaluation, would Megatronics Corporation likely be in favor of the acquisition of the competitor?4. Calculate the Northeast Division's ROI after acquisition of competitor but before upgrading.5-a. Assume that Megatronics uses residual income to evaluate performance and desires a 10 percent minimum return on investedcapital. Compute the current residual income of the Northeast Division and the division's residual income if the competitor is acquired.5-b. If divisional management is being evaluated on the basis of residual income, will the Northeast Division likely pursue acquisition ofthe competitor?Answer is not complete.Complete this question by entering your answers in the tabs below.Current ROIROI if competitor is acquiredReq 3ACompetitor68% of sales$2,730,000$ 996,000400,000$Req 38Compute the current ROI of the Northeast Division and the division's ROI if the competitor is acquired. (Round your answers to2 decimal places (i.e., .1234 should be entered as 12.34).)20.00 %24.00%< Req 1Req 4Req 5AReq 5BReq 2 >

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Megatronics Corporation, a massive retailer of electronic 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 14 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 had decided to redirect its retall activities. (If the competitor is acquired, it will be acquired at its book value.) The data that follow relate to recent performance of the Northeast Division and the competitor: Sales variable costs Fixed costs Invested capital Northeast Division $4,330,000 70% of sales $1,101,000 $ 990,000 Competitor 68% of sales $2,730,000 $ 996,000 400,000 $ Management has determined that in order to upgrade the competitor to Megatronics' standards, an additional $240,000 of Invested capital would be needed. Required: 1. Compute the current ROI of the Northeast Division and the division's ROI if the competitor is acquired. 2. If divisional management is being evaluated on the basis of ROI, will the Northeast Division likely pursue acquisition of the competitor? 3-a. Compute the ROI of the competitor as it is now and after the intended upgrade. 3-b. If ROI is used as the basis for evaluation, would Megatronics Corporation likely be in favor of the acquisition of the competitor? 4. Calculate the Northeast Division's ROI after acquisition of competitor but before upgrading. 5-a. Assume that Megatronics uses residual income to evaluate performance and desires a 10 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. 5-b. If divisional management is being evaluated on the basis of residual income, will the Northeast Division likely pursue acquisition of the competitor?

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q