1. Magnificent Modems, Inc. (MMI), is a division of Gilmore Business Products (GBP). GBP uses ROI as the primary measure of managerial performance. GBP has a desired return on investment (ROI) of 5.80 percent. The company has $220,000 of investment funds to be assigned to its divisions. The president of MMI is aware of an investment opportunity for these funds that is expected to yield an ROI of 6.20 percent. (Base your computations on the income statement and Balance Sheet provided below).

Income Statement
Sales revenue	$	720,000
Cost of goods sold		(515,000)
Gross margin		205,000
Sales commission		(42,000)
Depreciation expense		(14,000)
Administrative expense		(74,350)
Net income	$	74,650

Balance Sheet
Assets:
Cash	$	735,650
Manufacturing equipment, net of acc. depreciation		310,000
Office equipment, net of acc. depreciation		39,000
Total assets	$	1,084,650
Equity:
Common stock	$	1,010,000
Retained earnings		74,650
Total equity	$	1,084,650

a.

	Calculate the existing ROI for MMI. (Round your answer to 2 decimal places. (i.e., .2345 should be entered as 23.45).)

b.

Calculate Residual income.