Reference no: EM132638883

Smith is considering a proposal to invest $10 million in new equipment. This will probably increase next year's operating profit for his division by $1 million. Smith has analysed the future cash flows of this proposal, and the new acquisition will easily satisfy the minimum required rate of return of 10 per cent for all new investments that is set for the Youngblood Group. Without this acquisition, Smith expects his divisional profit ROI to drop to 14 per cent next year.

Required:

Question 1 Calculate the ROI for each division for last year and the current year, as well as the two components of ROI: profit margin and return on assets.

 

Question 2. Comment on the relative performance of the three divisions. N Calculate the bonus that each managing director would earn in the two years.

Question 3. Explain why Leonard Smith is reluctant to invest in the new brewing equipment. Provide calculations to back up your answer.

Question 4. Janice Cookson is considering expanding the divisional targets to include a range of non- financial measures. She is interested in developing a scorecard for each division. For each of the three divisions:

(a) Formulate objectives for each of the four perspectives: financial, customer, internal business process and learning and growth. (b) Construct a strategy map to demonstrate the relationships between objectives for each . perspective. (c) Suggest lag and lead indicators for these perspectives.