4,301,500- divisonal operation assets

Problem 10-18 (Algo) Return on Investment (ROI) and Residual Income [LO10-1, LO10-2] "I know headquarters wants us to add that new product line;" said Dell Havasi, manager of Billings Company's Orfice Products Division. "Bust I want to see the numbers before I make any move. Our division's return on imvestment (ROI) has led the company for three years. and I don't want any letdown:" Ballings Company is a decentralized wholesaler with five autonomous divisions. The divisions are evaluated on the basis of ROI, with year-end bonuses given to the divisional managers who have the highest ROIs. Operating results for the company's Office Proctucts Division for this yoar are given below: The company had an overall retum on investment (RO) of 17.00% this year (considering alt divisions). Next year the Oftice Products Division has an opporturity to odd a new product line that would require an additional irvestinent that would increase average operating assets by $2,313,700. The cost and revenue characteristics of the new product line per year would be: Required: 1. Compute the Ofifice Products Division's ROI for this year. 2 Compute the Olfice Producti Division's ROl for the new product line by itself. 3. Compute the Office Products Division's ROI for next year assuming that it performs the same as this year and adds the new product ine. 1. H you were in Dell Havasi's position, would you accept or reject the new product line? line. 4. If you were in Dell Havasi's position, would you accept or reject the new proctuct line? 5. Why do you suppose headquarters is anxious for the Office Products Division to add the new product line? 6. Suppose that the company's minimum required rate of return on operating assets is 14% and that performance is evaluated using residual income. a. Compute the Office Products Division's residual income for this year. b. Compute the Oifice Products Division's residual income for the new product line by ilself. c. Compute the Orfice Products Division's residual income for next year assuming that it performs the same as this year and adds the new product line. d. Using the resldual income approach, if you were in Dell Havast's position, would you accept or reject the new product line? Complete this question by entering your answers in the tabs below. 1. Compute the Office Products Division's ROI for this year. 2. Compute the Office Products Division's ROI for the new product line by itself. 3. Compute the Office Products Division's ROI for next vear assuming that it performs the same as this yoar and adds the new product line. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Complete this question by entering your answers in the tabs below. If you were in Dell Havasi's position, would you accept or reject the new product line? Why do you suppose headquarters is anxious for the Office Products Division to add the new product line? 6. Suppose that the company's minimum required rate of return on operating assets is 14% and that performance is evaluated using residual income. a. Compute the Office Products Division's residual income for this year. b. Compute the Office Products Division's residual income for the new product line by itself. c. Compute the Office Products Division's residual income for next year assuming that it performs the same as this year and adds the new product line. Complete this question by entering your answers in the tabs below. Using the residual incorne approach, if you were in Dell Havasi's position, would you accept or reject the new product line