The Central Division of Miller's Quarter Horse Company has sales of $4,500,000. It also has invested assets of $2,500,000 and operating expenses of $3,800,000. The company has established a minimum rate of return of 7%. Required:
Determine the following for the Central Division:
Profit Margin
ROI using DuPont formula
Residual Income
Miller has offered a new investment opportunity to the Central Division, which has a Return of Investment of 20% calculated as an operating income of $160,000 divided by the invested asset of $800,000.
Explain by undertaking required calculation, whether the manager of the Central division would undertake the additional investment opportunity if:
He was paid a bonus based upon his division’s overall ROI.
He was paid a bonus based upon his division’s overall RI