ROI and RI. (D. Kleespie) Speed Logistics provides transportation services to a wide variety of companies in southern Ontario. One of its divisions, the Concord Division, offers the service to pick up containers at the CN railway interchange and deliver them within Ontario. The demand for its services is relatively insensitive to price changes. The Concord Division is considered to be an investment centre and in recent years has aver- aged a return on investment of 20%. The Concord Division has a total of annual fixed costs of $1,200,000, the variable cost per km is $3.60, the average number of kilometres travelled per year is 1,000,000, and the average operating assets invested in the division are $1,920,000. REQUIRED 1. What is the minimum selling price that the Concord Division could charge for a 100-km trip if the division manager wants to get a favourable performance rating? Management considers an ROI below 20% to be unfavourable. 2. Assume that Speed Logistics judges the performance of its investment centre managers on the basis of residual income rather than ROI, as was assumed in requirement 1. The company's required rate of return is considered to be 15%. What is the minimum selling price per a 100-km trip that the Concord Division should charge to receive a favourable performance rating?

LO1