Image attached below.Questions1. Compute the current ROI for each division.2. Compute the current residual income for each division.3. Determine the effects after adding the new project to each division's ROI and residual income.4. Explain how the manager of each division will react to the opportunity if their performance is evaluated against residual income.5. Explain how the manager of each division will react to the opportunity if their performance is evaluated against ROI.6. Are ROI and residual income appropriate for evaluating the performance if the divisional managers7. What additional measures could be used for performance evaluation. Tech plc specialises in producing high tech computer chips. It has three divisions.Each division's required rate of return is 15%. Planned operating results for 2012 areas follows:Operating Income£15,000,000£25,000,000£11,000,000Investment£100,000,000£125,000,000£ 50,000,000DivisionB.Facing increasing global competition in the industry, the company is planning toupgrade its production methods in one of the three divisions. This project will requirean investment of £25,000,000 and will generate income of £4,500,000. The companyheadquarters is uncertain how this project will affect the performance of each division.

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FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Image attached below. Questions 1. Compute the current ROI for each division. 2. Compute the current residual income for each division. 3. Determine the effects after adding the new project to each division's ROI and residual income. 4. Explain how the manager of each division will react to the opportunity if their performance is evaluated against residual income. 5. Explain how the manager of each division will react to the opportunity if their performance is evaluated against ROI. 6. Are ROI and residual income appropriate for evaluating the performance if the divisional managers 7. What additional measures could be used for performance evaluation.

Tech plc specialises in producing high tech computer chips. It has three divisions.
Each division's required rate of return is 15%. Planned operating results for 2012 are
as follows:
Operating Income
£15,000,000
£25,000,000
£11,000,000
Investment
£100,000,000
£125,000,000
£ 50,000,000
Division
B.
Facing increasing global competition in the industry, the company is planning to
upgrade its production methods in one of the three divisions. This project will require
an investment of £25,000,000 and will generate income of £4,500,000. The company
headquarters is uncertain how this project will affect the performance of each division.

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