Hawkins Ceramics, a division of Piper Corporation, has an operating income of $64,000 and total assets of
Question:
The manager of Hawkins Ceramics has the opportunity to undertake a new project that will require an investment of $100,000. This investment would earn $14,000 for Hawkins Ceramics.
Requirements
1. What is the original ROI for Hawkins Ceramics (before making any additional investment)?
2. What would the ROI be for Hawkins Ceramics if this investment opportunity were undertaken? Would the manager of the Hawkins Ceramics division want to make this investment if she were evaluated based on ROI? Why or why not?
3. What is the ROI of the investment opportunity? Would the investment be desirable from the standpoint of Piper Corporation? Why or why not?
4. What would the RI be for Hawkins Ceramics if this investment opportunity were undertaken? Would the manager of the Hawkins Ceramics division want to make this investment if she were evaluated based on RI? Why or why not?
5. What is the RI of the investment opportunity? Would the investment be desirable from the standpoint of Piper Corporation? Why or why not?
6. Which performance measurement method, ROI or RI, promotes goal congruence? Why?
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Related Book For
Managerial Accounting
ISBN: 978-0176223311
1st Canadian Edition
Authors: Karen Wilken Braun, Wendy Tietz, Walter Harrison, Rhonda Pyp
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