Michelle Gutierrez, manager of the Components Division of FXCorporation, is cons
ID: 2433986 • Letter: M
Question
Michelle Gutierrez, manager of the Components Division of FXCorporation, is considering a new investment for herdivision. The division has an investment base of 4,000,000and operating income of 600,000. The new investment of500,000 supports corporate strategy and is expected to increaseoperating income by 50,000 next year, an acceptable level of returnfrom corporate headquarters point of view. a. What is the current return on investment (ROI) forthe Components Division? b. What will the ROI be if Michelle undertakes the newinvestment? c. Suppose Michelle's compensation consits of a salaryplus a bonus proportional to her division's ROI. IsMichelle's compensation with or withour the new investment? d. Suggest changes to FX Corporation's management thatwill better align performance evaluation and compensation withcorporate goals. Michelle Gutierrez, manager of the Components Division of FXCorporation, is considering a new investment for herdivision. The division has an investment base of 4,000,000and operating income of 600,000. The new investment of500,000 supports corporate strategy and is expected to increaseoperating income by 50,000 next year, an acceptable level of returnfrom corporate headquarters point of view. a. What is the current return on investment (ROI) forthe Components Division? b. What will the ROI be if Michelle undertakes the newinvestment? c. Suppose Michelle's compensation consits of a salaryplus a bonus proportional to her division's ROI. IsMichelle's compensation with or withour the new investment? d. Suggest changes to FX Corporation's management thatwill better align performance evaluation and compensation withcorporate goals.Explanation / Answer
A. Return on Investment= Operating Income/Investment =600000/4000000 15.00% B. Return on Investment= Operating Income/Investment = (600000+50000)/(4000000+500000) 14.44% C. Michelle's compensation will be higher without investment as ROI isgoing down from 15% to 14.4%