Oswego Company has three divisions: A, B, and C. The company has a hurdle rate of 7 percent. Selected operating data of the three divisions are as follows:

Oswego is considering an expansion project in the upcoming year that will cost \($5\) million and return \($400,000\) per year. The project would be implemented by only one of the three divisions.

Required:

1. Compute the ROI for each division.

2. Compute the residual income for each division.

3. Rank the divisions according to the ROI and residual income of each.

4. Compute the return on the proposed expansion project. Is this an acceptable project?

5. Without any additional calculations, state whether the proposed project would increase  or decrease each division’s ROI.

6. Compute the new ROI and residual income for each division if the project was implemented within that division.

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Sales $1,255,000 Cost of goods sold 776,000 Miscellaneous operating expenses 64,000 Division A Division B $ 920,000 675,000 Division C $ 898,000 652,000 53,100 52,000 Allocated corporate expenses 48,000 41,000 41,500 Average invested assets 4,150,000 3,860,000 3,215,000