Assume Solomon Modems Incorporated (SMI) is a division of Gilmore Business Products (GBP). GBP uses ROI as the primary measure of managerial performance. GBP has a desired return on investment (ROI) of 6.00 percent. The company has $240,000 of investment funds to be assigned to its divisions. The president of SMI is aware of an investment opportunity for these funds that is expected to yield an ROI of 6.70 percent.

Income Statement
Sales revenue	$ 740,000
Cost of goods sold	(525,000)
Gross margin	$ 215,000
Sales commission	(44,000)
Depreciation expense	(16,000)
Administrative expense	(74,750)
Net income	$ 80,250

Balance Sheet
Assets:
Cash	$ 739,250
Manufacturing equipment, net of accumulated depreciation	330,000
Office equipment, net of accumulated depreciation	41,000
Total assets	$ 1,110,250
Equity:
Common stock	$ 1,030,000
Retained earnings	80,250
Total equity	$ 1,110,250

Required

a-1. Calculate the existing ROI for SMI.

a-2. Based on your computations will the president of SMI accept or reject the $240,000 investment opportunity?

c-1. Calculate the estimated residual income of the new investment opportunity.

c-2. Based on the residual income would the president of SMI accept or reject the $240,000 investment opportunity?