1 Faced with headquarters desire to add a new product line, Stefan Grenier, manager of Birth Products' East Division felt that he had to see the numbers before he made a move. His division's ROI has led the company for three years, and he doesn't want any letdown Bilti Products is a decentralized wholesaler with four autonomous divisions. The divisions are evaluated on the basis of ROI, with year end bonuses given to divisional managers who have the highest ROI. Operating results for the company's East Division for last year are given below 10 points Sales Variable expenses Contribution margin Fixed expenses Operating income Divisional operating assets $27,380,000 14,210.eee 13,090,000 ze, 906.eee $ 2,134, see $ 9, 100,00 The company had an overall ROI of 12% last year (considering all divisions). The new product line that headquarters wants Grenier's East Division to add would require an investment of $5,850,000. The cost and revenue characteristics of the new product line per year would be as follows Sales Variable expenses Fixed expenses $ 11,780,000 yer of sales $ 2,691,600 Ronnirent 1 Required: 1. Compute the East Division's ROI for last year, also compute the ROI as it would appear if the new product line were added. (Do not round intermediate calculations. Round your final answer to the nearest whole number) Present New Line Total 10 Doints ROI 2. If you were in Grenier's position would you accept or reject the new product line? Accept Reject 3. Why do you suppose headquarters is anxious for the East Division to add the new product line? Adding the new line would increase the company's overall ROL O Adding the new line would decrease the company's overall ROI Help Save & Exit Sub Adoing the new line would increase the company's overal HUE O Adding the new line would decrease the company's overall ROL 1 4. Suppose that the company's minimum required rate of return on operating assets is 119 and that performance is evaluated using residual income a. Compute East Division's residual income for last year; also compute the residual income as it would appear if the new produer sine 10 points were added Present New Line Total Rosidual income b. Under these circumstances, if you were in Grenler's position, would you accept or reject the new product line? Accept O Reject