• Shorter University

• MGT MISC 

Kenneth Washburn, head of the Sporting Goods Division of Reliable Products, has just completed a miserable nine months. “If it could have

gone wrong, it did. Sales are down, income is down, inventories are bloated, and quite frankly, I’m beginning to worry about my job,” he

moaned. Washburn is evaluated on the basis of ROI. Selected figures for the past nine months follow.

Sales $4,800,000

Operating income 360,000

Invested capital 6,000,000

In an effort to make something out of nothing and to salvage the current year’s performance,

Washburn was contemplating implementation of some or all of the following four strategies:

a. Write off and discard $60,000 of obsolete inventory. The company will take a loss on the disposal.

b. Accelerate the collection of $80,000 of overdue customer accounts receivable.

c. Stop advertising through year-end and drastically reduce outlays for repairs and maintenance. These actions are expected to save the

division $150,000 of expenses and will conserve cash resources.

d. Acquire two competitors that are expected to have the following financial characteristics:

Projected

Sales

Projected

Operating

Expenses

Projected Invested

Capital

Anderson Manufacturing $3,000,000 $2,400,000 $5,000,000

Palm Beach Enterprises 4,500,000 4,120,000 4,750,000