ACCTBA3 GROUP BUSINESS CASE

Term 3, Academic Year 2015-2016

Mowen, Hansen, & Heitger
Cornerstone of Managerial Accounting, 5th edition (with modifications)
The manager of the NEW CASTLE division that produces add-on products for the
automobile industry has just been presented the opportunity to invest in two
independent projects. The first is an air conditioner for the back seats of vans and
minivans. The second is a turbocharger. Without the investments, the division will have
average assets for the coming year of P28.9 million and expected operating income of
P4.335 million. The outlay required for each investment and the expected operating
income are as follows:
Outlay
Operating Income

Air Conditioner
Turbocharger
P750,000
P540,000
90,000
82,080

(Note: Round all numbers to two decimal places.)

Required:
1. Compute the ROI for each investment project.
2. Compute the budgeted divisional ROI for each of the following four alternatives:
a. The air conditioner investment is made.
b. The turbocharger investment is made.
c. Both investments are made.
d. Neither additional investment is made.
3. Assuming that divisional managers are evaluated and rewarded on the basis of ROI
performance, which alternative do you think the divisional manager will choose?
4. Suppose the company sets a minimum required rate of return equal to 14%.
Calculate the residual for each of the following four alternatives:
a. The air conditioner investment is made.
b. The turbocharger investment is made.
c. Both investments are made.
d. Neither additional investment is made
Which option will the manager choose based on residual income? Explain.
5. Suppose that the company sets a minimum required rate of return to 10%.
Calculate the residua income for each of the following four alternatives:
a. The air conditioner investment is made.
b. The turbocharger investment is made.
c. Both investments are made.
d. Neither additional investment is made.
Based on residual income, are the investments profitable? Why does answer differ
from your answer in requirement 3?
INSTRUCTIONS
1. Requirements:
a) Show calculations for the independent situations. Support your answers with
qualitative information when necessary.
b) What management plans can you suggest for the independent situations to
improve the current operations?
c) Do not forget to include your references for a) and b).
2. Format of Written Report:
a) Paper size: 8.5 x 11
b) Margin: 1 on all sides
c) Font and Font size: Tahoma 11
Page 1

d) Paragraph alignment: Justified

e) Paragraph spacing: 1.5
f) Attachments: Include (1) peer evaluation of each group member, and (2) other
attachments at the end of your report.
g) Insert the entire report in a short sliding folder with transparent cover.
h) The cover page template is shown on the next page:

NEW CASTLE DIVISION

A Group Business Case

Presented to the
Accountancy Department
De La Salle University

In partial fulfillment
Of the course requirements
In (name of course Section___)

SUBMITTED TO:
(Name of Faculty)

SUBMITTED BY:
Surname, Given Name, M.I.*
Surname, Given Name, M.I.
Surname, Given Name, M.I.
Surname, Given Name, M.I.

August __, 2016

*NOTE: The names should be arranged alphabetically.
3. Deadline of Written Report:
a) MW class: August 17, 2016 (Wednesday)
b) TH class: August 18, 2016 (Thursday)
4. Rubric/Criteria for Grading:
c) To compute for the 5% team grade, please refer to the syllabus for the rubric.
d) To compute for the individual written group business case analysis grade, the
average peer evaluation grade (refer to Item#6) will be multiplied to the team
grade. A sample computation follows:
Application of ACCTBA3-related tools 100%* weight of 50%=50.00%
Page 2

Depth of insights
30%=27.00%

90%

weight

of

Quality in writing paper

20%=18.00%

90%

weight

of

Team grade

=95.00%

Multiplied by: Average peer evaluation grade

(Assume 2 exemplary, 1 satisfactory or 290%/3)

96.67%

INDIVIDUAL GRADE

91.83%

Multiplied by: Business case grade

5%

INDIVIDUAL BUSINESS CASE GRADE

4.59%

5. Peer Evaluation
a) On a one-half sheet of bond paper, cross-wise, write the names of all your group
mates (in alphabetical order).
b) Give the corresponding percentage (70, 80, 90, 100) for each of your group mate.
Refer to table below. Be fair when evaluating.
c) Print your name then sign as evaluator.
d) Include this as an attachment at the end of the paper.
CRITERIA

Contributi
on to
teams
final
output
[100%]

EXEMPLARY

SATISFACTORY

DEVELOPING

BEGINNING

100%

90%

80%

70%

The student
contributes
to the teams
final output
more than
what is
expected.

The student
contributes to
the teams
final output
as expected.

The student
contributes
somewhat to
the teams
final output.

Page 3

The student
does not
contribute to
the teams
final output.