Faced with headquarters' desire to add a new product line, Stefan Grenier, manager of Bilti Products'...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Faced with headquarters' desire to add a new product line, Stefan Grenier, manager of Bilti Products' East Division, felt that he had to see the numbers before he made a move. His division's ROI has led the company for three years, and he doesn't want any letdown. Bilti Products is a decentralized wholesaler with four autonomous divisions. The divisions are evaluated on the basis of ROI, with year-end bonuses given to divisional managers who have the highest ROI. Operating results for the company's East Division for last year are given below: $22,400,000 13,580,000 Sales Variable expenses Contribution margin Fixed expenses ৪, ৪20, 000 6,804,000 Operating income $ 2,016,000 Divisional operating assets $ 5,600,000 The company had an overall ROl of 20% last year (considering all divisions). The new product line that headquarters wants Grenier's East Division to add would require an investment of $3,200,000. The cost and revenue characteristics of the new product line per year would be as follows: Sales Variable expenses Fixed expenses $9,600,000 65% of sales $2,592,000 Required: 1. Compute the East Division's ROI for last year; also compute the ROI as it would appear if the new product line were added. (Do not round intermediate calculations.) Present New Line Total ROI % % 2. If you were in Grenier's position, would you accept or reject the new product line? O Accept Reject 3. Why do you suppose headquarters is anxious for the East Division to add the new product line? O Adding the new line would decrease the company's overall ROI. O Adding the new line would increase the company's overall ROI. 4. Suppose that the company's minimum required rate of return on operating assets is 19% and that performance is evaluated using residual income. a. Compute East Division's residual income for last year; also compute the residual income as it would appear if the new product line were added. Present New Line Total Residual income b. Under these circumstances, if you were in Grenier's position, would you accept or reject the new product line? O Accept O Reject Faced with headquarters' desire to add a new product line, Stefan Grenier, manager of Bilti Products' East Division, felt that he had to see the numbers before he made a move. His division's ROI has led the company for three years, and he doesn't want any letdown. Bilti Products is a decentralized wholesaler with four autonomous divisions. The divisions are evaluated on the basis of ROI, with year-end bonuses given to divisional managers who have the highest ROI. Operating results for the company's East Division for last year are given below: $22,400,000 13,580,000 Sales Variable expenses Contribution margin Fixed expenses ৪, ৪20, 000 6,804,000 Operating income $ 2,016,000 Divisional operating assets $ 5,600,000 The company had an overall ROl of 20% last year (considering all divisions). The new product line that headquarters wants Grenier's East Division to add would require an investment of $3,200,000. The cost and revenue characteristics of the new product line per year would be as follows: Sales Variable expenses Fixed expenses $9,600,000 65% of sales $2,592,000 Required: 1. Compute the East Division's ROI for last year; also compute the ROI as it would appear if the new product line were added. (Do not round intermediate calculations.) Present New Line Total ROI % % 2. If you were in Grenier's position, would you accept or reject the new product line? O Accept Reject 3. Why do you suppose headquarters is anxious for the East Division to add the new product line? O Adding the new line would decrease the company's overall ROI. O Adding the new line would increase the company's overall ROI. 4. Suppose that the company's minimum required rate of return on operating assets is 19% and that performance is evaluated using residual income. a. Compute East Division's residual income for last year; also compute the residual income as it would appear if the new product line were added. Present New Line Total Residual income b. Under these circumstances, if you were in Grenier's position, would you accept or reject the new product line? O Accept O Reject
Expert Answer:
Answer rating: 100% (QA)
Requirrement1 Workings New Line 13800000 Case ROI Calculations Sales 8280000 13800000 x ... View the full answer
Related Book For
Posted Date:
Students also viewed these general management questions
-
Faced with headquarters desire to add a new product line, Stefan Grenier, manager of Bilti Products East Division, felt that he had to see the numbers before he made a move. His divisions ROI has led...
-
Sales of a new product line for Petrus S.A. as of December 2013 are forecast at SFr. 2,400,000 per year, from which a sales commission of 15% would be paid to sales agents. Actual sales are to be...
-
The ABC Company is planning a new product line and will build a new plant to manufacture the parts for a new product line. The product line will include 50 different models. Annual production of each...
-
If you deposit $2,000 today into an account earning an annual rate of return of 9 percent, what would your account be worth In 30 years? a. If you deposit $2, 000 today into an account earning an...
-
Which of the following statements are true? If false, explain briefly. a) It is better to use an alpha level of 0.05 than an alpha level of 0.01. b) If we use an alpha level of 0.01, then a P-value...
-
One of the largest losses in history from unauthorized securities trading involved a securities trader for a French bank. The trader was able to circumvent internal controls and create over a billion...
-
A food processor claims that at most \(10 \%\) of her jars of instant coffee contain less coffee than claimed on the label. To test this claim, 16 jars of her instant coffee are randomly selected and...
-
From the following facts calculate what Mike Hall paid Lakeville Co. for the purchase of a dining room set. Sale terms are 5/10, n/30. a. Sales ticket price before tax, $11,000, dated April 5. b....
-
On December 31, 2023, Berclair Incorporated had 400 million shares of common stock and 7 million shares of 9%, $100 par value cumulative preferred stock issued and outstanding. On March 1, 2024,...
-
Examine the following summary of the U.S. balance of payments for 2000 (in $ billion) and fill in the blankentries. Debits 1,418.64 774.86 352.90 - 1,809.18 Balance on current account 3 securities...
-
true or false: firms selling durable goods are more affected by financial distress than firms selling nondurable goods.
-
How do boundary less organizational designs facilitate knowledge sharing and innovation across decentralized units in multinational corporations ?
-
In an inflationary environment, unevenly rising prices inevitably reduce the purchasing power of some consumers, and this erosion of real income is the single biggest cost of inflation. Inflation can...
-
You want to have $ 8000 by the time you finish college in 3 years. How much money should you deposit each quarter for the next 3 years into an account paying 9% per year compounded quarterly so that...
-
MonksCafe is a brewery that produces an award-winning beer called "Flemish Sour Ale" in Belgium and sells it to customers in Belgium and France. Historically, the company was setting the price using...
-
Charlotte filled up her car with gas before embarking on a road trip across the country. The capacity of Charlotte's gas tank is 12 gallons and the car uses 0.75 gallons of gas for every hour driven....
-
Consider Windows & Linux Operating Systems. If the security of your operating system were your primary consideration, which OS would you choose as your primary? Don't make assumptions based on what...
-
For the following exercises, find the area of the triangle. Round to the nearest hundredth. 22 50 36
-
Use the computations in Equations [11] through [13] to determine the MACRS annual depreciation for the following asset data: B = $50,000 and a recovery period of 7years. di t=2,3, [1 113] n-t1.5
-
Aeration and sludge recirculation have been practiced for many years at municipal and industrial water treatment plants. Aeration is used primarily for the physical removal of gases or volatile...
-
Acme Bricks, a masonry products company, wants to have $600,000 on hand before it invests in new conveyors, trucks, and other equipment. If the company sets aside $80,000 per year in an account that...
-
Prove that the dual function of Eq. (16.12) is concave Data From Equation (16.12) 19S See https://www.gams.com/ 20 See http://cvxr.com/
-
Consider the quadratic programming problem. min x+x s.t. 1x2 = 4. x1
-
Consider the problem min x1+x2 s.t. h(x) = x2 x3 = 0, - - h2(x) = x2 = 0,
Study smarter with the SolutionInn App