Hoosier Industries manufactures a variety of household products. Roy Washburn, h
ID: 2456071 • Letter: H
Question
Hoosier Industries manufactures a variety of household products. Roy Washburn, head of the company’s Hardware Division, has just completed a miserable nine months. “If it could have gone wrong, it did. Sales are down, income is down, inventories are bloated, and quite frankly, I’m beginning to worry about my job,” he moaned. Washburn is evaluated on the basis of ROI. Selected figures for the Hardware Division for the past nine months follow.
In an effort to make something out of nothing and to salvage the current year’s performance, Washburn was contemplating implementation of some or all of the following four strategies:
Stop advertising through year-end and drastically reduce outlays for repairs and maintenance. These actions are expected to save the division $228,000 of expenses and will conserve cash resources.
Calculate the projected ROI for Anderson Manufacturing and Palm Beach Enterprises.
Should Washburn reject both acquisitions, accept both the acquisitions, acquire Anderson Manufacturing or acquire Palm Beach Enterprises in order to maximize the ROI?
Hoosier Industries manufactures a variety of household products. Roy Washburn, head of the company’s Hardware Division, has just completed a miserable nine months. “If it could have gone wrong, it did. Sales are down, income is down, inventories are bloated, and quite frankly, I’m beginning to worry about my job,” he moaned. Washburn is evaluated on the basis of ROI. Selected figures for the Hardware Division for the past nine months follow.
Explanation / Answer
Answer:
Currrent ROI:
Projected ROI of competitors:
The ROI of both the competitors are higher than the current ROI of the hardware division. Acquiring any of them or both of them would improve the ROI of the hardware division. So both the project should be accepted.
Existing in $ A Operating income 648,000 B Invested capital 90,00,000 C ROI = A/B 7.2%Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.