News Report Group has two major divisions: Print and Internet. Summary financial data (in millions) for 2018 and 2019 are as follows:

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 automatically 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 2020 division operating income by $360 million. News Report Group uses a 10% required rate of return on investment for each division.

Required
1. Use the DuPont method of profitability analysis to explain differences in 2019 ROls between the two divisions. Use 2019 total assets as the investment base.

2. Why might Mays be less than enthusiastic about accepting the investment proposal for the new system despite her belief in the benefits of the new technology?

3. John Mendenhall, CEO of News Report Group, is considering a proposal to base division executive compensation on division RI.

a. Compute the 2019 RI of each division.

b. Would adoption of an RI measure reduce Mays' reluctance to adopt the new computerized system investment proposal?

4. Mendenhall is concerned that the fo cus on annual ROI could have an adverse Jong-run effect on News Report Group's customers. What other measurements, if any, do you recommend that Mendenhall use? Explain briefly.

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Data Home Page Layout в с Operating Income 2018 Formulas Insert Review View Revenues Total Assets 2018 2019 2018 2019 2019 3 Print 4 Internet $25,000 $3,720 525 $4,500 $18,700 $22,500 $18,200 690 25,000 11,150 10,000 23,000 2.