# decisions

## decisions

﻿Question 5
1. The ROI of rental division: 825000/11000000=0.075
The ROI of transportation division: 855000/9500000=0.09
2. The RI of rental division: 825000-8800000x12%=-231000
The RI of transportation division: 855000-6700000x12%=51000
3. The alternative RI of rental division: 825000-11000000x12%=-495000
The alternative RI of transportation division: 855000-9500000x12%=-285000
4. WACC=0.15x6/15+(1-0.4)x9/15x0.1=0.096
The EVA of rental division: 825000-8800000x0.096=-19800
The EVA of transportation division: 855000-6700000x0.096=211800
5. Transportation division does better than rental division since the ROI, RI and EVA of transportation division are greater than rental division.
6. If there is disorganization in the company, each division will not co-operate with the others, fight for resources and make competition with the others. These cause each division not following the company’s goal and finally goal in congruence occurs.

Question 2
a. The machine-hours required:

Cruiser-LX
Cruiser-EX
Boater-LX
Boater-EX
Canoe Star

Demand
1800
2400
4500
4200
39000

Hours
600/200=3
500/200=2.5
500/200=2.5
400/200=2
200/200=1

Total
5400
6000
11250
8400
39000
70050

b.

Cruiser-LX
Cruiser-EX
Boater-LX
Boater-EX
Canoe Star
Price
3000
2400
2100
2000
800
Less: DM
750
650
500
500
100
Machine cost
600
500
500
400
200
150
125
125
100
50
Commission
150
120
105
100
80
Contribution margin
1350
1005
870
900
370

c.

Cruiser-LX
Cruiser-EX
Boater-LX
Boater-EX
Canoe Star
margin
1350
1005
870
900
370
hours
3
2.5
2.5
2
1
Margin per hours
450
402
348
450
370
The most profitable products are Cruiser-LX and Boater-EX. The following is Cruiser-EX and the next is Canoe Star and the less profitable product is Boater-LX.
d. The different between machine-hours required and capacity is 10050 (70050-60000). Boater-LX needs 11250 hours...