ANSWER THE FOLLOWING

i. Calculate the current ROl of the Handheld Electronics Division and the ROl of the division if Touchscreen is acquired. Round to 4 decimal places.

in. What is the likely reaction of management of Handheld Electronics Division towards the acquisition? Explain why?

ili. Assume that Spark Company uses residual income to evaluate performance for a division and desires a minimum required rate of return of 12 per cent on invested capital. Calculate the current residual income of the Handheld Electronics Division and the division's residual income if Touchscreen is acquired. Will management of Handheld Electronics Division be likely to change its attitude towards the acquisition?

Explain why.

Spark Company is a retailer of electrical products and has four divisions. At the end of each year the four divisional managers are evaluated, and bonuses are awarded based on divisional ROI (return on investment). Last year, the company as a whole produced an ROI of 13%. During the past week, management of the company's Handheld Electronics Division was approached about the possibility of buying the operations of a competitor, Touchscreen, which wished to cease its retail operations. The following data relate to recent performance of the Handheld Electronics Division and Touchscreen. If the acquisition occurs, the operations of Touchscreen will be absorbed into the Handheld Electronics Division. The operations of Touchscreen will need to be upgraded to meet the high standards of Spark Company, which would require an additional $562,500 of invested capital