The Manager of the Processing Division of XYZ Corporation Is

question 25

Essay

The manager of the processing division of XYZ Corporation is considering the purchase of new equipment, which would modernize an aging plant. Currently, the division has an asset base of $8,000,000 and net operating income of $1,200,000. The new equipment is expected to cost $1,000,000; it supports the corporate strategy of competing on the basis of quality and customer response time (CRT). The new investment is also expected to increase operating income by $100,000 next year, which is an acceptable return on investment (ROI) from the standpoint of corporate management.
Required:
1. What is the current ROI for the processing division of XYZ Corporation? (Show calculations.)
2. What will be the divisional ROI if the new investment is undertaken?
3. Suppose that the compensation contract for the manager of the processing division consists of a base salary plus a bonus that is proportional to the ROI earned by the division. Is this manager's total compensation higher with or without the new investment? (Show calculations.)
4. What changes to the divisional manager's compensation contract might corporate management make that would better align divisional manager's compensation (and performance evaluation) with overall corporate goals?

---

Definitions:

Reproduction

The biological process by which new individual organisms are produced, either sexually or asexually.

Evolutionary Theory

A scientific explanation for the diversity of life, proposing that organisms change over generations through processes of natural selection and genetic variation.

Sexual Motivation

The psychological and physiological factors that guide and influence sexual behavior and desires.

Gender Disparity

Refers to the differences and inequalities in opportunities, status, and attitudes between genders.