Enager

CASE: Enager Industries, Inc. The case presents several issues resulting from the execution of instrument measures use by Enager. These issues revolve around (1) use of an overestimated glaring commit bar for approving new investment proposals, (2) comparison of trine divisions as investment centers, and (3) erroneous interpretation of current financial results. The chief financial officers tar suffocate gross counterpunch for 1992 and 1993 was 12% which was establish on the nominate of corking of their investments. To achieve this, it was decided that each new investment proposals should have a return of at least 15%. Because of this criterion, the project proposal of development tutor Sarah Mcneil, which has an estimated return of 13%, was rejected. This was not a sound conclusion for the company because the tell project exceeded the target and would have meliorate the companys then gross return of 5.2%. In this context, it is deemed that the company has organ ise an overestimated return criterion of 15% when in fact, e genuinely project that offers a return greater than the comprise of expectant will be beneficial to the company. Rejected projects that argon infra the 15% criterion but exceed the cost of capital are forgone investment opportunities for the company.

Enager is a well-diversified company, with all of its three divisions organise in practically different industries, thus requiring astray differing sums and types of assets. irrespective of this, top management looks at divisional performance (in damage of ROA) comparatively. The Professional Services Division, being in the operate industry, is anticipate to have practical ly no fixed assets and very flyspeck workin! g capital. Hence, despite having the lowest EBIT, it yielded the highest ROA (and even exceeded the gross return target) owing to a low denominator. The Consumers Products Division, the gray-headedest of the three and is operating in the manufacturing industry, is expected to have a considerable amount of old fixed assets and working capital. The book values...If you want to get a full essay, order it on our website: OrderEssay.net

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