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Assume you are the manager of an investment center and that your annual bonus is a function of achieved ROI for your division. You have

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Assume you are the manager of an investment center and that your annual bonus is a function of achieved ROI for your division. You have the opportunity to invest in a project that would cost RM700,000. (This level of return is considered acceptable from top management's standpoint) Currently, your division generates annual operating profits of approximately RM750,000, on an asset base (i.e., level of investment) of RM5,000,000. Required: a. Calculate the current return on investment (ROI) being realized by your division (i.e., before considering the new investment) b. Calculate the new ROI of your division after adding the effect of the new investment. c. As a manager of this division, given your incentive-compensation plan, would you be motivated to make the new investment? Explain your answer. d. State whether you agree or disagree with the following statements. Briefly explain your answer. i. An investment centre is a responsibility centre. ii. Residual income can be considered as a measure of the performance of divisions of a business entity. iii. An increase in average operating assets will increase return on investment (ROI) assuming all other things the same

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