Reference no: EM132969712

Mr. Jekyl is the General Manager of PQR Canada Limited which is a subsidiary of a large multinational firm that is traded on a major stock exchange.

• The parent company has responsivity for all capital expenditure decisions of the subsidiary, and can dictate if the subsidiary must discontinue operations in a market segment and sell the associated assets used in this segment.
• During 2019 the parent company told the subsidiary that it must discontinue product XYZ and late in 2019 PQR discontinued the production and sales of product XYZ. Specific assets held for disposition and not used in 2020 total have gross value of $55,556.
• All entities are evaluated on the return on the assets invested and the required return must be at least 10% in order to earn annual bonuses which are scaled up as the ROI increases above the 10% required return.
• For purposes of ROI, fixed assets are valued at gross value and not net value.
• On the next pages you see condensed summary financial statements for PQR for the year ended December 31, 2020 and a proposed capital expenditure.

Problem 1: Comment on the appropriate return on investment calculation for Mr. Jekyl and calculate the amount to 1 decimal place.

Problem 2: Comment on the appropriate return on investment calculation for PQR Limited and calculate the amount to 1 decimal place.

Problem 3: Comment on the appropriate return on investment calculation for the large multinational firm and calculate the amount to 1 decimal place.

Problem 4: Would Mr. Jekyl be motivated to make the capital investment at the present time? BRIEFLY justify your answer.

Problem 5: Do you think the bonus system suits the shareholders best interests?