The Following Information Is Available About the Status and Operations

question 121

Essay

The following information is available about the status and operations for Division B of Boxwood Company, which has a minimum required ROI of 20%. Answer each item independently of the others.
$$\begin{array} { l r } & \text { Division B } \\\text { Divisional investment } & \$ 1,500,000 \\\text { Divisional profit } & \$ 550,000 \\\text { Divisional sales } & \$ 3,600,000\end{array}$$
Required:
a. Compute the ROI for Division B.
b. Division B could increase its profit by $25,000 by increasing its investment by $100,000. Compute its new ROI.
c. Division B could increase its profit margin ratio by one percentage point (for example: from 13% to 14%), without increasing total sales or investment. Compute its new ROI.
d. Division B could reduce its investment so that its asset turnover increased by one time, while holding total sales and profit constant. Compute its new ROI.

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Definitions:

Group Attribution Error

The tendency to erroneously attribute the behavior or attitudes of individual members to the characteristics of the group as a whole.

Extremity Bias

A cognitive bias where individuals tend to remember and give disproportionate weight to the most extreme examples or experiences.

Law of Small Numbers

A cognitive bias that leads people to draw broad conclusions from small data sets or limited information.

Outgroup Heterogeneity Bias

The tendency to view members of an out-group as more diverse and individual than members of one's own in-group.