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Emilie Peters, the manager of the Laptop Division at Multitech Corporation, has enjoyed success. Her division's return on investment (ROI) has consistently been 18 percent on a total investment in operating assets of $5,000,000.
Multitech evaluates its division managers based on ROI. The company's desired ROI is 12 percent. Ms. Peters is evaluating an opportunity that will require a $1,000,000 investment in additional operating assets and is expected to result in a 14 percent return.
REQUIRED:
Option a) Would it be advantageous for Multitech Corporation if Ms. Peters makes the investment under consideration? Explain your answer.
Option b) What effect will making the proposed investment have on Laptop Division's ROI? Show computations.
Option c) What effect will making the proposed investment have on Multitech's residual income (RI)?
Option d) Would ROI or RI be the better performance measure for Ms. Peters? Explain your answer.
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