Question 1: Case Study

A Co., B Co. & C Co. are a subsidiary of ABC group. B Co is looking for a friendly buyer for its ground sports equipment. ABC Group's CEO believes that B Co's assets could be acquired for an investment of $1.1 million and has asked Mr. Viliame, the Accountant of A Co. to consider acquiring B Co. Mr. Viliame quickly reviewed the financial statements of B Co, and he believes that the acquisition may not be in the best interests of ABC Group. Further, he knows that if he does not proceed with acquiring B Co, management is not going to be at all pleased! Mr. Viliame exclaimsto his divisional management team: 'If only we could convince them to base our bonuses on something other than ROI'. For the past few years, ABC Group has always evaluated the divisions on the basis of ROI, and the target ROI for each division is 22%. The management team of any division that reports an annual increase in their ROI is given a bonus, but the managers of divisions where the ROI declines must provide a very convincing explanation as to why they should get a bonus. Where ROI has declined, the bonus is limited to only 50% of the bonus that is paid to the divisions that report an increase in ROI.

The following represents the performance results of A Co. & B Co. (Attached)

The {allowing represents the performance results {if A Cu. 5:. E Co. _ Tutal liabilities and equity _m Assume imputed interest charge of 12%