Kelfour Enterprises has divided its operations into two divisions. Relevant acco
ID: 2449214 • Letter: K
Question
Kelfour Enterprises has divided its operations into two divisions. Relevant accounting data for each division is as follows:
Kelfour has an additional $50,000 of funds to invest. The manager of the Western Division believes that she can invest the funds at a rate of return (ROI) of 14% while the manager of the Eastern Division has found a new investment opportunity that is expected to yield a 12% ROI. Currently Kelfour uses ROI as the sole measure of managerial performance. Based on this information
a. The manager of the Western division is likely to reject an offer to have the funds invested her department.
b. The manager of the Eastern division is likely to accept an offer to have the funds invested his department.
c. The CEO of Kelfour is likely to favor having the funds invested in the Western Division.
d. All of the answers represent true statements.
Divisions Sales Operating Assets Operating Income Western Division $ 150,000 $ 100,000 $ 15,000 Eastern Division $ 300,000 $ 150,000 $ 16,500Explanation / Answer
The correct answer is Option D i.e. All of the answers represent true statements
Because Western division will reject the offer because it will decrease it overall ROI and Eastern Division will e ready to accept the investment because it will increase its overall ROI. And the welfour will be interested to invest in Western Division due to higher ROI.
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