Unit One: Case Study (MIP)

Kaplan University – GB519 Measurement and Decision Making
March 2010

What is the ROI for MIP based on original estimates? • Operating assets ( development costs were $140 million • Sales ( annual operating income was expected to be approximately $25 million ROI for MIP = 25 million / 140 million = .18%

What is the ROI if Richard Lawrence’s new revenue projects are used? • likely generate operating income of just $17.5 million per year ROI for MIP with new figures = 17.5 million / 140 million = .13%

Elaine feels pressure to deliver “good news” to Blake. What advice would you give to her? Given the possible personal financial rewards that Elaine may enjoy if GSM goes public, would your advice change? The truth in the figures is exactly what Elaine should be showing to Blake. Although the numbers are less than satisfactory to Blake and his expectations, the numbers are the numbers and should be reported appropriately. It would prove Elaine less than assertive and capable of doing her new job if she sugar coated the news. Managers and executives require solid information in order to make sound decisions.
What responsibilities does Elaine have to other GSM employees, the board of directors, and the venture capitalists? Elaine’s duty is to report to Blake. However, this is information that also affects all those involved with the possibility of MIP going public. Because of this, Elaine should share this information with all pertinent management at MIP. If she knows information that MIP is not doing as well as everyone thinks, she has an ethical responsibility to do the right thing and share this information.
Briefly examine the differences between ROI, Residual Income, and EVA. Is ROI the best technique to apply in this particular scenario? Why or why not? Return on