Measurements and Decisions Case Study Unit 1

Unit 1-Case Study

A. The ROI based on the original estimates is 140,000,000/25,000,000= 17.9%

The ROI based on Richard Lawrence’s new revenue projections is

140,000,000/17,500,000= 12.5%.

B. Elaine must devise a strategy that will either increase sales, reduce operating expenses or

reduce the investment. If Elaine increases sales, by either increasing the price but not

effecting the amount of sales or if she increases the amount of sales and does not change

the price, the income will increase which will cause the ROI to increase. If Elaine

deceases the amount invested, which she can do through better management and

inventory control, this will also cause an increase in the ROI.

In this situation, I would advise Elaine to present her boss, Mr. Blake, with the

theory that they are basing their ROI on projections not actual numbers. She should

ensure Mr. Blake that once actual numbers are produced, they can use residual income to

measure the performance on their organization. Elaine can explain that residual income

is the amount of income earned in excess of a predetermined minimum rate of return on

assets. Elaine can also suggest to her boss that if accurate, the ROI is still positive and

the return is still above the investor’s required rate of return which will create added value to the

company.

If GSM goes public, Elaine may endure some possible financial rewards. These

rewards may include stock based compensation. Elaine may be offered a stock option

which would allow her to purchase shares of stock at a set price. She may also be offered

restricted stock which would be issued to her if she is with the company for a set amount

of time and meets performance measures.

Elaine can benefit from strong results but it is not likely she would benefit in the long run

If her reports are not being properly reported.

C. The responsibilities Elaine has to employees of GSM...