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Kendall was paying very close attention to his performance metrics this year because he was finally eligible for profit-sharing. If his division earns a profit margin of 6% (which would reflect a 2% increase over the prior year), he will receive 0.1% of the profits. It doesnt initially sound like much, but last year the divisions profits exceeded $1 million. The following key financial outcomes were projected for his division at the beginning of this year.

Sales $16,500,000

Operating income $1,200,000

Operating assets $10,000,000

a. Assume the equipment overhaul cost is $120,000; $10,000 of depreciation expense associated with this investment will be taken this year. Does this change Kendalls divisions profit margin if all else continues as expected through the end of the year? If so, how?

b. In addition to achieving a 6% profit margin, each division is expected to maintain a minimum ROI of 12%. If Kendall replaces this asset (removing the book value of the old asset, which was $50,000), what will his year-end ROI be if everything else goes as planned?

c. Does it look like Kendall is going to share in his divisions profits this year? If so, explain. If not, explain whether theres anything he can do to still hit his targets through ethical means.

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