I don't get it. I've got a new product proposal that can't help but make money, and top management turns thumbs down. No matter how we price this new item, we expect it to make $130,000 pretax. That would contribute 14 cents per share to our earnings after taxes, which is nearly as much as the 15-cent earnings-per-share increase in 1997 that the president made such a big thing about in the shareholders' annual report. It just doesn't make sense for the president to be touting e.p.s. while his subordinates are rejecting profitable projects like this one.

Questions
1. Why was McNeil's new product proposal rejected? Should it have been? Explain.
2. Evaluate the manner in which Randall and Hubbard have implemented their investment center concept. What pitfalls did they apparently not anticipate?
3. What, if anything, should Randall do now with regard to his investment center measurement approach?

EXHIBIT1 ENAGER INDUSTRIES, INC. Income Statements For 1996 and 1997 (thousands of dollars, except earnings per share figures) Year Ended December 31 1996 1997 $70,731 54,109 16,622 $74,225 56,257 17,968 Sales Cost of sales Gross margin Other expenses: 4,032 6,507 994 11,533 5,089 2,036 3,053 Development Selling and general 4,008 6,846 1,376 12,230 5,738 2,295 5 3,443 Interest Total Income betore taxes Income tax expense Net income Earnings per share (500,000 and 550,000 shares outstanding in 1996 and 1997, respectively) S 6.11 6.26