Cole Corporation recently announced a bonus plan to be awarded to the manager of the most profitable division. The three division managers are to choose whether ROI or RI will be used to measure profitability. In addition, they must decide whether investment will be measured using gross book value or net book value of assets. Cole defines income as operating income and investment as total assets. The following information is available for the year just ended:

Cole uses a required rate of return of 9% on investment to calculate RI.

Each division manager has selected a method of bonus calculation that ranks his or her division number one. Identify the method for calculating profitability that each manager selected, supporting your answer with appropriate calculations. Comment on the strengths and weaknesses of the methods chosen by eachmanager.

  • CreatedJanuary 15, 2015
  • Files Included
Post your question