Mesopotamian Materials Inc. (MMI) has two decentralized divisions (Ur and Babylon) that have decision making responsibility over the amount of resources invested in their divisions. Recent financial extracts for both divisions are presented below:
*Net income is after tax but before interest
MMI's weighted average cost of capital (WACC) is 11.5%. The MMI measures division performance based on the book value of net assets. The producer price index 15 years ago was 100, 116 five years ago, and currently is 125.
Ur can increase its ROI by:
A. increasing product contribution margin
B. increasing sales volume
C. reducing discretionary expenses
D. taking on debt
E. all of the above
E. all of the above
All of these strategies can be utilized to increase ROI. However, not all of these are necessarily beneficial to the parent company or the shareholders. Thus it is customary to supplement ROI performance measures with constraints and minimum performance or expenditure targets.
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