Guenther Corporation uses the return on investment (ROI) measure to evaluate its managers. A summary of the performance of two divisions is given below:

The minimum required return on operating assets for Guenther Corporation is 14%.

Required:

1. According to Guenther?s senior management, which division is the better performer? Why?

2. Can Guenther?s management use a different measure to evaluate performance? How will using a different measure affect management?s evaluation of the two divisions?

3. Suppose the manager of Division A were offered a one-year project that would increase his average operating assets by $100,000 and increase profit by $15,000.

a. Would the manager accept the project under the current method of performance evaluation? Why, or why not?

b. Using your alternative measure of performance evaluation (as in part (2) above), do you think the manager should accept the project? Why, or why not?

4. Comment on the value of using only financial metrics to evaluate performance. Is there any other performance measurement model available that provides a more holistic view of an organization?s performance? Explain this performance measurement model in detail.

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Division B Division A Average operating assets $240,000 $400,000 Net income 72,000 48,000