The following information applies to the questions displayed below.
Megatronics Corporation, a massive retailer of electronic products, is organized in four separate divisions. The four divisional managers are evaluated at year-end, and bonuses are awarded based on ROI. Last year, the company as a whole produced a 13 percent return on its investment.
During the past week, management of the company's Western Division was approached about the possibility of buying a competitor that had decided to redirect its retail activities. (If the competitor is acquired, it will be acquired at its book value.) The data that follow relate to recent performance of the Western Division and the competitor:
| Western Division |
Competitor |
| Sales |
$ |
4,200,000 |
|
$ |
2,600,000 |
|
| Variable costs |
|
70 |
% of sales |
|
65 |
% of sales |
| Fixed costs |
$ |
1,075,000 |
|
$ |
835,000 |
|
| Invested capital |
$ |
925,000 |
|
$ |
312,500 |
|
Management has determined that in order to upgrade the competitor to Megatronics' standards, an additional $187,500 of invested capital would be needed.