ROI, RI, DuPont method, investment decisions, balanced scorecard. News Report Group has two major divisions: Print and Internet. Summary financial data (in millions) for 2016 and 2017 are as follows: Home Insert Page Layout Formulas Data Review View н Total Assets A в Operating Income Revenues 2016 2017 2016 2017 2016 2017 $18,700 $22,500 $18,200 $25,000 10,000 3. Print $3,720 $4,500 4 Internet 525 690 25,000 23,000 11,150 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.
ROI, RI, DuPont method, investment decisions, balanced scorecard. News Report Group has two major divisions: Print and Internet. Summary financial data (in millions) for 2016 and 2017 are as follows: Home Insert Page Layout Formulas Data Review View н Total Assets A в Operating Income Revenues 2016 2017 2016 2017 2016 2017 $18,700 $22,500 $18,200 $25,000 10,000 3. Print $3,720 $4,500 4 Internet 525 690 25,000 23,000 11,150 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.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
John Mendenhall, CEO of News Report Group, is considering a proposal to base division executive compensation on division RI.
a. Would adoption of an RI measure reduce Mays’s reluctance to adopt the new computerized system investment proposal?
Transcribed Image Text:ROI, RI, DuPont method, investment decisions, balanced scorecard. News Report Group has
two major divisions: Print and Internet. Summary financial data (in millions) for 2016 and 2017 are as
follows:
Home
Insert
Page Layout
Formulas
Data
Review
View
н
Total Assets
A
в
Operating Income
Revenues
2016
2017
2016
2017
2016
2017
$18,700 $22,500
$18,200 $25,000
10,000
3.
Print
$3,720
$4,500
4 Internet
525
690
25,000
23,000
11,150
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.
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