The Magellan Division of Global Corporation, Which Has Income of $250,000

question 21

Multiple Choice

The Magellan Division of Global Corporation, which has income of $250,000 and an asset investment of $1,562,500, is studying an investment opportunity that will cost $450,000 and yield a profit of $67,500. Assuming that Global uses an imputed interest charge of 14%, would the investment be attractive to: 1-Divisional management if ROI is used to evaluate divisional performance?
2-Divisional management if RI is used to evaluate divisional performance?
3-The management of Global Corporation? $\begin{array} { | l | c | c | c | } \hline & \text { Attractive to Magellan: ROI } & \text { Attractive to Magellan: RI } & \text { Attractive to Global } \\\hline 1 & \text { Yes } & \text { Yes } & \text { Yes } \\\hline 2 & \text { Yes } & \text { No } & \text { No } \\\hline 3 & \text { Yes } & \text { No } & \text { Yes } \\\hline 4 & \text { No } & \text { Yes } & \text { Yes } \\\hline 5 & \text { No } & \text { Yes } & \text { No }\\\hline\end{array}$

• A)1
• B)2
• C)3
• D)4
• E)5

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Definitions:

Perfectly Inelastic

Refers to a market situation where the quantity demanded or supplied does not change regardless of the price level changes.

Perfectly Elastic

Describes a market situation where quantity demanded or supplied changes by an infinite amount in response to any change in prices.

Demand

The willingness and ability of consumers to purchase goods and services at various prices.

Price Elasticity

A measure of the sensitivity of demand or supply to changes in price, indicating how the quantity demanded or supplied responds to price changes.