Professional Documents
Culture Documents
JSC
$10,500.000
(7,000,000)
(1,500,000)
$ 2,000,000
RLI
$2,800,000
(1,000,000)
(1,200,000)
$ 600,000
Current assets
Long-term assets
Total Assets
$ 2,300,000
5,700,000
$ 8,000,000
$1,900,000
1,100,000
$3,000,000
Current liabilities
Long-term liabilities
Stockholders equity
Total liabilities and
Stockholders equity
$ 1,400,000
3,800,000
2,800,000
$ 8,000,000
$ 850,000
1,200,000
950,000
$3,000,000
1.
2.
3.
If Mason Industries continues to use return on investment as the sole measure of division performance,
explain why JSC would be reluctant to acquire RLI. Be sure to support your answer with appropriate
calculations.
If Mason Industries could be persuaded to use residual income to measure the performance of JSC,
explain why JSC would be more willing to acquire RLI. Be sure to support your answer with
appropriate calculations.
Discuss how the behavior of division managers is likely to be affected by the use of:
a. Return on investment as a performance measure.
b. Residual income as a performance measure.