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Which should be chosen by the financial controller

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Reference no: EM132955668

Gemilang Berhad is a decentralized wholesaler with four autonomous divisions that operate in similar markets, that are Division A, B, C and D. Each division is being monitored based on its Return on Investment (ROI), with investment defined as total net operating assets employed.

The following investment opportunities are available to a Financial Controller:

Division           Initial Investment          Annual Earnings

A                   RM800,000                    RM90,000

B                   RM100,000                      RM20,000

C                   RM300,000                         RM25,000

D                   RM400,000                            RM60,000

Required:

Problem a. Elaborate on how the Financial Controller could improve the division's ROI.

Problem b. It is assumed that the cost of capital of Gemilang Berhad is 10 percent. Based on ROI, which project(s) should be chosen by the Financial Controller?

Problem c. If Gemilang Berhad is currently making a return on investment of 16 percent, which project(s) would the Financial Controller choose as the best investment?

Problem d. Based on the Residual Income (RI), advice Gemilang Berhad on which division should be chosen as the best investment.

Reference no: EM132955668

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