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5) The Nutmeg Company maintains three divisions Danbury, East Hartford, and Fairfield. The investment center model is used to evaluate performance. The organization's imputed
5) The Nutmeg Company maintains three divisions Danbury, East Hartford, and Fairfield. The investment center model is used to evaluate performance. The organization's imputed interest rate for calculating residual income (RI) is 14%. Budgeted operating results for 2021 for each of the three divisions are as follows: Division Operating income Investment Danbury $ 18,000,000 $110,000,000 East Harford Fairfield $ 30,000,000 $ 137,500,000 $ 13,200,000 $ 55,000,000 The strategic growth plan will require that each division increase its investments by $27,500,000. Likewise, each division will increase their operating income by $4,950,000. Required: 1. Compute the current ROI for each division. 2. Compute the current residual income (RI) for each division. 3. Determine the effects after adding the new project to each division's ROI and residual income (RI). For all calculations show percentages to two decimal places (see Question 4 for example). Show dollar amounts in full dollars aka no decimal points. Traditional rounding rules apply where applicable. (Excel defaults to traditional rounding rules.)
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