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    Alternatives

    Uploaded by

    Kelly Cardejon
    The document discusses two alternatives for a shoe company: 1) Implementing the ShoeShock project which would exceed the target ROA but increase risk, or 2) Not pursuing the project and still meeting the target ROA with less risk. It provides background on the company and shoe division as well as forecasted sales and contributions of the ShoeShock project.

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    Download as TXT, PDF, TXT or read online from Scribd

    Alternatives

    Uploaded by

    Kelly Cardejon
    44 views1 page
    The document discusses two alternatives for a shoe company: 1) Implementing the ShoeShock project which would exceed the target ROA but increase risk, or 2) Not pursuing the project and still meeting the target ROA with less risk. It provides background on the company and shoe division as well as forecasted sales and contributions of the ShoeShock project.

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    © © All Rights Reserved

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    TXT, PDF, TXT or read online from Scribd

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    The document discusses two alternatives for a shoe company: 1) Implementing the ShoeShock project which would exceed the target ROA but increase risk, or 2) Not pursuing the project and still meeting the target ROA with less risk. It provides background on the company and shoe division as well as forecasted sales and contributions of the ShoeShock project.

    Copyright:

    © All Rights Reserved
    Download as TXT, PDF, TXT or read online from Scribd
    Download as txt, pdf, or txt
    44 views1 page

    Alternatives

    Uploaded by

    Kelly Cardejon
    The document discusses two alternatives for a shoe company: 1) Implementing the ShoeShock project which would exceed the target ROA but increase risk, or 2) Not pursuing the project and still meeting the target ROA with less risk. It provides background on the company and shoe division as well as forecasted sales and contributions of the ShoeShock project.

    Copyright:

    © All Rights Reserved
    Download as TXT, PDF, TXT or read online from Scribd
    Download as txt, pdf, or txt
    of 1

    Alternatives:

    1. Implementation of project ShoeShock in Shoe Division of Generic Group of


    Companies
    - This alternative will result to ROA ratios of 24.44% and 44.17% for the next two
    years which exceeds the single 13-target ROA for all its division. Although the
    Return on Asset for the

    2. Do not pursue investment on ShoeShock


    - The Generics Group of Company is still be able to reach the 13%-target ROA
    notwithstanding establishment of the Project ShoeShock. Nevertheless,

    Generics group of Companies is highly divesified company by which it invests in


    real estate, food and beverages, health and beauty, recreation and leisure, and
    fashion and accesories. It is a broad spectrum of businesses, with a consolidated
    net income of about 75 million, and has consolidated assets of over 1 Billion with
    sales to asset ratio of 1.1. The group decided that a 13%-target ROA is a policy
    that all general managers must commit to this target ROA.

    Shoe Division, the latest addition to the Generics Group that has total asset of
    about Php 50,000,000 and contributes 10% to the consolidated net income. Over the
    past decade, the company has been exceeding the ROA targets and has consistently
    excel amongst other division in terms of attaining the target. It has conservative
    0.2, and uses straight line method in depreciating its fixed assets. All profits
    are taxed at 32%.

    The Shoe Division introduce a new product called ShoeShock with an uncertain
    product life cycle of 4 years. The company needs to acquire a subtle machinery
    exclusively for the purpose of the production of this project. It requires a
    certain attachements and modifications costing 1 million and an additional 2
    million as operating expenses. It has a 10-year useful life withoit any salvage
    value and the gross profit is 5% higher compared to other pruducts.

    The sales for the next two years were forecasted at Php 90,289,000 and Php
    107,458,000. The estimated contribution of ShoeShock would be Php 5,408,000 and Php
    16,486,000.

    Mr. Manlapig, the General Maanager of the Shoe Division is concious about the
    potential impact on his division's
    ROA if the planned production of ShoeShock were established. If ever that the
    ShoeShock will be pushed through, this will affect significantly the over-all
    profitability of the group considering gthat it managed to maintaing its top
    position for the past 10 years.

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