6

Short Problem 6: Capital Investments has three divisions. Each division's required rate of return is 15%. Planned operating results for 2018 are as follows: Division Operating income Investment A $15,000,000 $100,000,000 B $25,000,000 $125,000,000 S11,000,000 $ 50,000,000 The company is planning an expansion, which will require each division to increase its investments by $25,000,000 and its income by $4,500,000 Required: a. Compute the current ROI for each division. b. Compute the current residual income for each division c. Rank the divisions according to their current ROIs and residual incomes. d. Determine the effects after adding the new project to coch division's ROI and residual income (show calculations). e. Assuming the managers are evaluated on either ROI or residual income, which divisions are pleased with the expansion and which ones are unhappy