1) A corporation has three investment centers with the following data: Division A B...

1) A corporation has three investment centers with the following data:

Division	A	B	C
Sales	$3,000,000	2,500,000	5,750,000
Assets	1,500,000	500,000	2,300,000
Profit	300,000	25,000	168,000
Required return	14%	7%	10%

Compute the ROI in two parts for each division. Compute the residual income for each division. Assume each division is presented with an investment opportunity that yields a return on investment of 8%.

A) If performance is measured by ROI, which division(s) would probably accept the offer? Reject? B) If performance is measured by residual income, which division(s) would probably accept the offer? Reject?

2) A corporation has a segment, Division A that sells a part on the outside market for $120. Its costs, based on a unit capacity of 200,000 units, are $25 variable and $45 fixed. The company has a related segment, Division B that could use the part in its own assembly operations. Division B buys the part from another supplier for $112, and it will need 40,000 units.

Required: 1) Assume division A is selling 140,000 units to outside customers.

From the standpoint of Division A, what is the lowest acceptable transfer price for units sold to Division B?
From the standpoint of Division B, what is the highest acceptable transfer price for units purchased from Division A.
If left to bargain freely, would you expect the division managers to voluntarily agree on a transfer of units from Division A to Division B? Give reasons.
From the standpoint of the entire company, should the transfer take place? Give reasons.

2) Now assume Division A is selling all its capacity to outside customers. Answer a through d under this new condition.

Expert Solution

ekkarill92 answered 1 year ago

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