Question 2. Financial performance measures (22 marks)

Electromart is a retailer of electrical products and has four divisions. The four divisional managers are evaluated at the end of each year, and bonuses are awarded based on ROI. Last year, the company as a whole produced an ROI of 13 per cent.

During the past week, management of the company's Little River division was approached about the possibility of buying the operations of a competitor, Big River, which wished to cease its retail operations. The following data relate to a recent performance of the Little River division and Big River. Little River

Big River

Sales

$8,400,000

$5,200,000

Variable costs

70% of sales

65% of sales

Fixed costs

$2,150,000

$1,670,000

Invested capital

$1,850,000

$625,000