BM1915

NAME: DATE: SCORE:

ACTIVITY

Cassie Corporation is a decentralized firm segmented into different divisions and departments. The divisions are treated
as investment centers whose performance is evaluated using the return on investment (ROI) method. Mr. L. Presidente,
the president of Cassie Corporation, requires a minimum ROI of 10% for any project to be undertaken by the divisions in
his company. He leaves the investment decisions to the division managers as long as the 10% ROI is expected to be
realized.

Mr. D. Vision, a manager of one of the divisions of Cassie Corporation, which had a return on investment of 15% for the
past several years, expects to have the same ROI in the coming year. Mr. D. Vision has the opportunity to invest in a new
project expected to have an ROI of 13%.

Required (2 items x 5 points):

1. If Mr. L. Presidente were to decide, would he invest in the new project? Justify your answer.

If the President decides to engage in the new project, he and Mr. D. Vision would have an equal opportunity,
driven by the projected return on investment surpassing the minimum percentage. Furthermore, Mr. Vision's
potential investment is supported by a robust divisional performance, where the ROI exceeds the required
minimum, suggesting a likely concurrent increase in profits.

2. If the division managers were evaluated based on the ROI method, would Mr. D. Vision invest in the project?
Justify your answer.

Without a doubt, Mr. Vision must engage in the project as the division manager, where he not only oversees his
department but also achieves an ROI surpassing the president's required percentage. If Mr. Vision seizes the
opportunity to invest in the new project, the 13% ROI is deemed reasonable for managing a single division,
serving as the core of the division's earnings. Furthermore, there's an expectation of success for the new project,
with an anticipated 13% return on investment should Mr. Vision decide to participate.