Back Mountain Industries (BMI) has two divisions: East and West. BMI has a cost of capital of 25 percent. Selected financial information (in thousands of dollars) for the first year of business follows:

	East			West
Sales revenue	$	1,500		$	6,000
Income		375			540
Investment (beginning of year)		3,000			4,000
Current liabilities (beginning of year)		250			250
R&D expendituresa		750			650

^aR&D is assumed to benefit two periods. All R&D is spent at the beginning of the year.

Required:

a-1. Evaluate the performance of the two divisions assuming BMI uses residual income.