Compuwork Corporation Is Organized in Three Separate Divisions

question 67

Essay

Compuwork Corporation is organized in three separate divisions. The three divisional managers are evaluated at year-end, and bonuses are awarded based on ROI. Last year, the overall company produced a 12% return on its investment.
Managers of Compuwork's Iowa Division recently studied an investment opportunity that would assist in the division's future growth. Relevant data follow.

Required:
A. Compute the current ROI of the Iowa Division and the division's ROI if the investment opportunity is pursued.
B. What is the likely reaction of divisional management toward the acquisition? Why?
C. What is the likely reaction of Compuwork's corporate management toward the investment? Why?
D. Assume that Compuwork uses residual income to evaluate performance and desires an 11% minimum return on invested capital. Compute the current residual income of the Iowa Division and the division's residual income if the investment is made. Will divisional management likely change its attitude toward the acquisition? Why?

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Definitions:

Unconscious Mind

A part of the mind that operates beyond conscious awareness, influencing thoughts, feelings, and actions without our direct knowledge.

Childhood Experiences

Events or interactions that occur during the early years of life, significantly impacting an individual's development and personality.

Psychoanalytic Psychology

A branch of psychology that explores the role of unconscious motives and conflicts in determining human behavior, originated by Sigmund Freud.

Cognitive Psychology

A branch of psychology focused on the study of mental processes, including perception, memory, thought, and problem-solving.