Delta Division Had the Following Results for the Year Just

question 40

Essay

Delta Division had the following results for the year just ended:
Sales $375,000
Variable costs 225,000
Fixed costs 120,000
Total operational assets 150,000
Delta is considering a new product line that would involve the following:
Sales $75,000
Variable costs 45,000
Fixed costs 23,250
Total operational assets 37,500
Delta's parent company, Omega, Inc., has a company-wide ROI of 14% and pays bonuses based on divisional ROI.
a)Determine the effect on Delta's ROI if it introduces the new product line. Would Delta's managers be encouraged to introduce the new product line?
b)Determine the effect on Omega's ROI if Delta introduces the new product line. Would the top managers of Omega want to introduce the new product line?
c)Assume a required rate of return of 10% on operational assets invested in each division. Determine the effect on Delta's residual income if it introduces the new product. Would Delta's managers be encouraged to introduce the new product line?

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Definitions:

Psychosis

A mental disorder characterized by a disconnection from reality, which may include hallucinations, delusions, and impaired thought processes.

Social Anxiety Disorder

A mental health disorder characterized by significant anxiety or fear of being judged, negatively evaluated, or rejected in a social or performance situation.

Blindsight

A condition where an individual can respond to visual stimuli without consciously perceiving them, typically following brain damage.

Visual Perception Track

The process and pathways by which visual information is received, interpreted, and integrated in the brain.