$(8$ points$)$ The manager of the processing division of $xYZ$ Corporation is considering the purchase of new equipment. The division currently has assets of $$8,000,000$ and operating income of $$1,200,000.$ The new equipment is expected to cost $$1,000,000$ and is expected to reduce customer response time $($CRT$)$ resulting in expense savings of $$100,000$ next vear. XYZ Coro. has a minimum Required Rate of Return $($RRR$)$ of $10\%$ on all proiects.

a$.$ What is the current ROI for the processing division $($without purchasing the new equipment$)?$

b$.$ What will be the processing division's ROI after the purchase of the new equipment?

c$.$ The processing division's manager receives a base salary plus a bonus that is proportional to the ROI earned by the division. Is the manager's total compensation better with the durchase of the new eauipment or not purchasina the new equipment?

d$.$ Is XYZ Corporation better off with the purchase of the equipment or not purchasing the equipment?

e$.$ What changes to the divisional manager's compensation package might be made that would better align divisional manager's compensation $($and performance$)$ with overall companv aoaks

Page $17$