4 Problem 13-42 ROI and Residual Income; Investment Evaluation (LO 13-2, 13-3, 13-4, 13-8) 1.5 points Megatronics Corporation, a massive retailer of electronic products, is organized in four separate divisions. The four divisional managers are evaluated at year-end, and bonuses are awarded based on ROI. Last year, the company as a whole produced a 14 percent return on its Investment. During the past week, management of the company's Northeast Division was approached about the possibility of buying a competitor that had decided to redirect its retail activities. (If the competitor Is acquired, it will be acquired at its book value.) The data that follow relate to recent performance of the Northeast Division and the competitor: Skipped eBook Sales Variable costs Fixed costs Invested capital Northeast Division $4,230,eee 70% of sales $1,681, eee $ 940,000 Competitor $2,630,eee 60% of sales $ 974, eee $ 325, eee References Management has determined that in order to upgrade the competitor to Megatronics' standards, an additional $195,000 of Invested capital would be needed. Reg 1 Reg 2 Req 3A Reg 3B Reg 4 Reg 5A Reg 5B Assume that Megatronics uses residual income to evaluate performance and desires a 12 percent minimum return on invested capital. Compute the current residual income of the Northeast Division and the division's residual income if the competitor is acquired. Current residual income Residual income if competitor is acquired Reg 1 Reg 2 Reg 3A Reg 3B Reg 4 Reg 5A Reg 5B If divisional management is being evaluated on the basis of residual income, will the Northeast Division likely pursue acquisition of the competitor? OYes ONO