Michael Cianci, Manager of Division C of the FX Corporation

question 60

Essay

Michael Cianci, manager of Division C of the FX Corporation, is considering a new investment for his division. The division currently has an investment base (i.e., assets) of $4,000,000, and operating income of approximately $600,000 per year. The new investment of $500,000 supports corporate strategy and is expected to increase operating income by $50,000 next year, an acceptable level of return from the standpoint of the corporation as a whole.
Required:
1. What is the current return on investment (ROI) for Division C?
2. What will be the ROI of the division if the new investment is undertaken?
3. Suppose the manager's compensation consists of a salary plus a bonus proportional to divisional ROI. Would the manager's compensation be higher with, or without, the new investment?
4. Suggest changes to corporate management that will better align performance evaluation and compensation with corporate goals.

---

Definitions:

Anonymity

The state of being unknown or unacknowledged in a particular context, allowing individuals to act or communicate without revealing their identity.

Greed

An intense and selfish desire for something, especially wealth, power, or food.

Dangerous Reactions

Responses to events or substances that could lead to harm or adverse effects.

Dyad

the simplest social group consisting of two people, often used to study interpersonal relationships.