The Triple Creek Golf Complex is a three-course complex where each course has its own restaurant and pro shop. Thus, the complex is organized into three departments that are treated as investment centers. Budget information for the coming year for these three departments is shown below. The managers of each of the departments are evaluated and bonuses are awarded each year based on ROI.

a. Compute the ROI for each department. Use the DuPont method to analyze the return on sales and capital turnover.
b. Assume the Pro Shops are considering installing new display cases. Upon investigating, the manager of the division finds that the cases would cost $60,000 and that sales revenue would increase by $10,000 per year as a result of the new cases. What is the ROI of the new cases?
What impact does the investment in the display cases have on the Pro Shops’ ROI? Would the manager of the Pro Shops be motivated to undertake such an investment?
c. Compute the residual income for each department if the minimum required return for the Triple Creek Golf Complex is 18 percent. What would be the impact of the investment in b on the Pro Shops’ residualincome?

  • CreatedApril 17, 2014
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