Megatronics Corporation, a massive retailer of electronic products, is organized
ID: 2456321 • Letter: M
Question
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 13 percent return on its investment.
During the past week, management of the company’s Western Division was approached about the possibility of buying a competitor that had decided to redirect its retail activities. (If the competitor is acquired, it will be acquired at its book value.) The data that follow relate to recent performance of the Western Division and the competitor:
Management has determined that in order to upgrade the competitor to Megatronics’ standards, an additional $187,500 of invested capital would be needed.
1. Compute the ROI of the competitor as it is now and after the intended upgrade. (Round your ROI to 2 decimal places (i.e., .1234 should be entered as 12.34).)
%
2. Calculate the Western Division's ROI after acquisition of competitor but before upgrading. (Round your "Percentage" answer to 2 decimal places (i.e., .1234 should be entered as 12.34).)
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 13 percent return on its investment.
Explanation / Answer
1.
%
2.
Thus, return on investment is 23.04%.
Competitor NOW Sales 2620000 A Variable Cost 60 % of Sales Variable Cost 1572000 B Contribution 1048000 C=A-B Fixed Cost 970000 D Profit 78000 E=C-D Invested Capital 300,000 F Return on Investment(ROI) 26.00% E/F*100 Additional capital to upgrade 187500 G Total capital after upgradation 487,500 H=G+F Return on investment after upgradation 16.00%