The OakTree Group is a 75-year old company founded in Hong Kong. The Group comprises of...

   
 

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The OakTree Group is a 75-year old company founded in Hong Kong. The Group comprises of two major businesses: a publishing business known as Fairmont Publishing and an insurance business named Generalife. The Group is curently organized in a decentralized manner with two businesses running as investment centers. However, with the recent retirement of many senior staff in OakTree, the CEO is very much concerned regarding the performance of the company under a new generation of leadership. In fact, the CEO is considering the possibility of restructuring the Group into a centralized structure. Fairmont Publishing is organized as a divisional structure with the presence of two divisions: Printed Media and Online Media. The following are summary financial information for 2019 and 2020: Printed Media Online Media 2019 2020 2019 2020 Sales $18,900 $19,320 $25,200 $26,880 SG&A expenses $6,590 $5,670 $8,530 $12,810 $6,092 $4,050 $18,562 $7,290 $6,520 $8,564 Current assets Cost of goods sold Fixed assets $6,600 $8,180 $13,980 $4,250 $17,644 $8,350 Current liabilities $5,380 $6,530 $4,350 $4,460 Cost of Capital Required rate of return 16% 16% 13% 13% 15% 15% 15% 15% Tax Rate 40% 40% 40% 40% Note: All dollar figures are in thousand dollars. According to Fairmont's policy, the divisional managers' bonuses are solely based on divisional ROI. If a division reports an increase in ROI from previous year, its management is automatically eligible for a bonus; however, the management of a division reporting a decline in ROI has to present an explanation to the senior management of the Group and is unlikely to get any bonus. Manager of the Printed Media division, Sam Chan, is considering a proposal to invest $800,000 in a new digital imagining and printing system for Year 2021. Sam believes that the new state-of-the-art system will increase the divisional operating income by $120,000. Generalife spends considerable resources on processing claims. Short, accurate processing is desirable because both customers and the company benefit by resolving claims satisfactorily and by using minimum resources to do so. To improve its insurance claims processing, Generalife began a pilot project in its Kolwoon claims office to track the time to process each new automobile loss claim during a recent quarter. Processing time begins when a company representative receives a claim and ends when the final settlement is reached. Following are time data related to processing these claims at the company's Kowloon office. Average 8-Hour Days Spent in Waiting for Adjusters 3.5 8.1 9.4 9.1 Waiting for Information 4.1 10.1 15.2 25.6 Days to Complete Processing by Adjusters 0.25 0.34 0.65 1.3 Revision and Percent Number 0-10 11-20 21-30 31-40 41-50 51-60 11,520 28,800 86,400 69,120 54,720 23,040 14.400 Corrections 0.12 0.11 0.15 0.28 4% 10% 30% 24% 0.44 0.88 19% 2.4 2.9 11.9 12.3 31.4 8% 38.2 > 60 5% 3.1 11.5 49.7 2.6 Required: Evaluate the divisional managers' performance based on Fairmont's current performance evaluation criteria. Also discuss the area of improvement for both divisions. (Word limit: 100 exclude supporting computations) (2 marks) а. Would Sam be keen to accept the investment proposal for the new digital imaging and printing system? computations) (5 marks) b. Explain with supporting computations. (Word limit: 50 exclude supporting Senior management is also considering residual income as a performance measure. Comment on the performance on the two divisions based on residual income. (Word limit: 50 exclude supporting computations) (5 marks) с. d. Senior management is concerned that solely focus on ROI in measuring divisional performance could have an adverse long-run effect on Fairmont Publishing's customers. What other measurement, if any, would you recommend Fairmont to use? Explain. (Word limit: 100) (5 marks) Evaluate the efficiency of the Kowloon claims office of Generalife as to it's automobile loss claims process. Show supporting computations where necessary. (Word limit: 50 exclude supporting computations) (5 marks) е. f. What recommendation(s) would you offer to Generalife to improve the efficiency of Kowloon claims office in processing automobile loss claims. (Word limit: 50) (3 marks) The OakTree Group is a 75-year old company founded in Hong Kong. The Group comprises of two major businesses: a publishing business known as Fairmont Publishing and an insurance business named Generalife. The Group is curently organized in a decentralized manner with two businesses running as investment centers. However, with the recent retirement of many senior staff in OakTree, the CEO is very much concerned regarding the performance of the company under a new generation of leadership. In fact, the CEO is considering the possibility of restructuring the Group into a centralized structure. Fairmont Publishing is organized as a divisional structure with the presence of two divisions: Printed Media and Online Media. The following are summary financial information for 2019 and 2020: Printed Media Online Media 2019 2020 2019 2020 Sales $18,900 $19,320 $25,200 $26,880 SG&A expenses $6,590 $5,670 $8,530 $12,810 $6,092 $4,050 $18,562 $7,290 $6,520 $8,564 Current assets Cost of goods sold Fixed assets $6,600 $8,180 $13,980 $4,250 $17,644 $8,350 Current liabilities $5,380 $6,530 $4,350 $4,460 Cost of Capital Required rate of return 16% 16% 13% 13% 15% 15% 15% 15% Tax Rate 40% 40% 40% 40% Note: All dollar figures are in thousand dollars. According to Fairmont's policy, the divisional managers' bonuses are solely based on divisional ROI. If a division reports an increase in ROI from previous year, its management is automatically eligible for a bonus; however, the management of a division reporting a decline in ROI has to present an explanation to the senior management of the Group and is unlikely to get any bonus. Manager of the Printed Media division, Sam Chan, is considering a proposal to invest $800,000 in a new digital imagining and printing system for Year 2021. Sam believes that the new state-of-the-art system will increase the divisional operating income by $120,000. Generalife spends considerable resources on processing claims. Short, accurate processing is desirable because both customers and the company benefit by resolving claims satisfactorily and by using minimum resources to do so. To improve its insurance claims processing, Generalife began a pilot project in its Kolwoon claims office to track the time to process each new automobile loss claim during a recent quarter. Processing time begins when a company representative receives a claim and ends when the final settlement is reached. Following are time data related to processing these claims at the company's Kowloon office. Average 8-Hour Days Spent in Waiting for Adjusters 3.5 8.1 9.4 9.1 Waiting for Information 4.1 10.1 15.2 25.6 Days to Complete Processing by Adjusters 0.25 0.34 0.65 1.3 Revision and Percent Number 0-10 11-20 21-30 31-40 41-50 51-60 11,520 28,800 86,400 69,120 54,720 23,040 14.400 Corrections 0.12 0.11 0.15 0.28 4% 10% 30% 24% 0.44 0.88 19% 2.4 2.9 11.9 12.3 31.4 8% 38.2 > 60 5% 3.1 11.5 49.7 2.6 Required: Evaluate the divisional managers' performance based on Fairmont's current performance evaluation criteria. Also discuss the area of improvement for both divisions. (Word limit: 100 exclude supporting computations) (2 marks) а. Would Sam be keen to accept the investment proposal for the new digital imaging and printing system? computations) (5 marks) b. Explain with supporting computations. (Word limit: 50 exclude supporting Senior management is also considering residual income as a performance measure. Comment on the performance on the two divisions based on residual income. (Word limit: 50 exclude supporting computations) (5 marks) с. d. Senior management is concerned that solely focus on ROI in measuring divisional performance could have an adverse long-run effect on Fairmont Publishing's customers. What other measurement, if any, would you recommend Fairmont to use? Explain. (Word limit: 100) (5 marks) Evaluate the efficiency of the Kowloon claims office of Generalife as to it's automobile loss claims process. Show supporting computations where necessary. (Word limit: 50 exclude supporting computations) (5 marks) е. f. What recommendation(s) would you offer to Generalife to improve the efficiency of Kowloon claims office in processing automobile loss claims. (Word limit: 50) (3 marks)

Answer rating: 100% (QA)

A Evaluation of the divisional managers performance can be done by calculating the Return On Investment ROI for each division The ROI for the Online M... View the full answer