Mesopotamian Materials Inc *Net Income Is After Tax but Before Interest
MMI's Weighted

question 2

Multiple Choice

Mesopotamian Materials Inc.(MMI) has two decentralized divisions (Ur and Babylon) that have decision making responsibility over the amount of resources invested in their divisions.Recent financial extracts for both divisions are presented below: $\begin{array}{c}\begin{array}{lll}\\\text {Fixed assets, gross}\\\text {Accumulated depreciation}\\\text {Other assets}\\\text {Liabilities}\\\text {Sales}\\\text {Net income after tax*}\\\text {Average age of fixed assets (years) }\end{array}\begin{array}{rr}\text {Ur}\\\$ 2,500 \\\$ 1,500 \\\$ 500 \\\$ 500 \\\$ 6,750 \\\$ 743 \\ 15 \end{array}\begin{array}{l}\text {Babylon:}\\\$ 4,000 \\\$ 1,200 \\\$ 750 \\\$ 1,000 \\\$ 7,200 \\\$ 1,008\\5\end{array}\end{array}$
*Net income is after tax but before interest
MMI's weighted average cost of capital (WACC) is 11.5%.The MMI measures division performance based on the book value of net assets.The producer price index 15 years ago was 100,116 five years ago,and currently is 125.
Ur can increase its ROI by:

• A)increasing product contribution margin
• B)increasing sales volume
• C)reducing discretionary expenses
• D)taking on debt
• E)all of the choices are correct

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Definitions:

Organizational Development

A planned effort to increase an organization's effectiveness and viability through interventions in its processes and structures.

OD Techniques

stands for Organizational Development Techniques, which are strategies and methods used to improve organizational effectiveness and employee well-being.

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