1. Calculate ROI for 20x1

2. Calculate residual income for 20x1 for the Fairmont Division.

Suburban Lifestyles, Inc., has manufactured prefabricated houses for over 20 years. The houses are constructed in sections to be assembled on customers' lots. Suburban Lifestyles expanded into the precut housing market when it acquired Fairmont Company, one of its suppliers. In this market, various types of lumber are precut into the appropriate lengths, banded into packages, and shipped to customers' lots for assembly. Suburban Lifestyles' management designated the Fairmont Division as an investment center. Suburban uses return on investment (ROI) as a performance measure with investment defined as average productive assets. Management bonuses are based in part on ROI. All investments are expected to earn a minimum return of 16 percent before income taxes. Fairmont's ROI has ranged from 29.2 to 32.4 percent since it was acquired. Fairmont had an investment opportunity in 20 times 1 that had an estimated ROI of 28 percent. Fairmont's management decided against the investment because it believed the investment would decrease the division's overall ROI. The 20 times 1 income statement for Fairmont Division follows. The division's productive assets were $23,100,000 at the end of 20 times 1, a 5 percent increase over the balance at the beginning of the year