Acctba3 b Case Term 3 Ay2015-16

ACCTBA3 GROUP BUSINESS CASE Term 3, Academic Year 2015-2016 M!e", #a"$e", % #ei&'er Cr"er$&"e ( Ma"a'eria) Acc*"&i"', 5&+ edi&i"  with

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 The manager of the NEW CASTLE division that produces add-on products for the auto automo mobi bile le indu indust stry ry has has just just been been pres presen ente ted d the the oppo opport rtun unit ity y to inve invest st in to to indepe independe ndent nt projec projects! ts! The "rst is an air condit condition ioner er for the bac# bac# seats seats of vans vans and minivans! The second is a turbocharger! turbocharger! Without the investments$ the division ill ill have average assets for the coming year of %&'!( million and e)pected operating income of  %*!++, %*!++, million! million! The outlay reuir reuired ed for each investment investment and the e)pected e)pected operating operating income are as follos.

/utlay /perating 2ncome

Air Air Co Cond ndit itio ione nerr Turbo urboch char arge gerr %0,1$111 %,*1$111 (1$111 '&$1'1

3Note. 4ound all all numbers to to to decimal places!5 places!5 Re.*ired/ 6! Compute Compute the the 4/2 for each each investm investment ent proj project! ect!

&! Compute Compute the budgeted budgeted divisional divisional 4/2 for each of the folloing folloing four four alternatives. alternatives. a! The air conditioner conditioner investment investment is made! b! The turbochar turbocharger ger investment investment is made! made! c! 7oth 7oth invest investmen ments ts are are made made!! d! Neither Neither addit additional ional investment investment is made! made! +! Assuming Assuming that divisiona divisionall managers managers are evaluated evaluated and and rearded rearded on the basis basis of 4/2 performance$ hich alternative do you thin# the divisional manager ill choose8 *! Supp Suppos ose e the the comp compan any y sets sets a mini minimu mum m reu reuir ired ed rate rate of retu return rn eua euall to 6*9! 6*9! Calculate the residual for each of the folloing four alternatives. a! The air conditioner conditioner investment investment is made! b! The turbochar turbocharger ger investment investment is made! made! c! 7oth 7oth invest investmen ments ts are are made made!! d! Neither Neither addit additional ional investment investment is made made Which option ill the manager choose based on residual income8 E)plain! ,! Supp Suppos ose e that that the the comp compan any y sets sets a mini minimu mum m reui euirred rate rate of retur eturn n to 619! 619! Calculate the residua income for each of the folloing four alternatives. a! The air conditioner conditioner investment investment is made! b! The turbochar turbocharger ger investment investment is made! made! c! 7oth 7oth invest investmen ments ts are are made made!! d! Neither Neither addit additional ional investment investment is made! made! 7ased on residual income$ income$ are the investments pro"table8 pro"table8 Why does anser di:er from your anser in reuirement +8 INSTRUCTIONS

6! Re.*ireme"&$/ a5 Sho Sho calcul calculati ations ons for the indepe independe ndent nt situat situation ions! s! Suppor Supportt your your anser ansers s ith ith ualitative information hen necessary! b5 What What manage managemen mentt plans plans can you suggest suggest for the indepe independe ndent nt situation situations s to improve the current operations8 c5 ;o not forg forget et to include include your your referen references ces for a5 a5 and b5! b5! &! rma& ( ri&&e" Rer&/ a5 %aper aper siargin.. 6= on all all side sides s c5 ?ont ?ont and ?ont ?ont si2TTE; 7D. Surname$ iven Name$ >!2! Surname$ iven Name$ >!2! Surname$ iven Name$ >!2! Surname$ iven Name$ >!2!

August $ &16F N/TE. The names should be arranged alphabetically! +! 4ead)i"e ( ri&&e" Rer&/ a5 >W class. A*'*$& 1, 2016 ed"e$da7 b5 TG class. A*'*$& 18, 2016 T+*r$da7 *! R*9ric:Cri&eria (r Gradi"'/ c5 To compute for the ,9 team grade$ please refer to the syllabus for the rubric! d5 To compute for the individual ritten group business case analysis grade$ the average peer evaluation grade 3refer to 2temHF5 ill be multiplied to the team grade! A sample computation follos. Application of ACCT7A+-related tools I 6119 eight of ,19J,1!119 %age &

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