ACCT

"I know headquarters wants us to add that new product line," said Fred Halloway, manager of Kirsi Products' East Division. "But I want to see the numbers before I make a move. Our division's return on investment (ROI) has led the company for three years, and I don't want any letdown." Kirsi Products is a decentralized wholesaler with four autonomous divisions. The divisions are evaluated on the basis of ROI, with year-end bonuses given to divisional managers who have the highest ROI. Operating results for the company's East Division for last year are given below: The company's East Division has an opportunity to add a new product line that would require an investment of $3,000,000. The cost and revenue characteristics of the new product line per year would be as follows: Compute the East Division's ROI for last year: also compute the ROI as it would appear if the new product line is added. Suppose that the company's minimum required rate of return on operating assets is 15% and that performance is evaluated using residual income. Compute the East Division's residual income for last year: also compute the residual income as it would appear if the new product line is added