Homework Answers
| a. | Existing ROI | Division 1 | Division 2 | |
| Earnings | $720,000 | $2,400,000 | ||
| Investment base | $6,000,000 | $15,000,000 | ||
| ROI | 12% | 16% | ||
| (720,000/6,000,000) | (2,400,000/15,000,000) | |||
| New ROI | Division 1 | Division 2 | ||
| Earnings | $720,000 | $2,700,000 | ||
| Investment base | $6,000,000 | $18,000,000 | ||
| ROI | 12% | 15% | ||
| ROI of Division 2 decreased to 15% from 16%. | ||||
| b. | No, Manager of division 2 would not be motivated to undertake the investment as it will reduce ROI. | |||
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