Baruch Products is a division of DBA Textiles Inc.During the coming year, it expects to earn income of P310,000 based on sales of P3, 450,000.Without any new investments, the division will have average operating assets of P3,000,000.The division is considering a capital investment project -adding knitting machines to produce gaiters - that requires an additional investment of P600,000 and increases net income by P57,500 (sales would increase by P575,000).If made, the investment would increase beginning operating assets by P600,000 and ending operating assets by P400,000.Assume that the actual cost of capital for the company is 7% (Note:Round all answers to four decimal places.)

Required:

1.Compute the ROI for the division without the investment.

2.Compute the margin and turnover rates without the investment.Show that the product of the margin and turnover ratios equals the ROI computed in requirement 1.

3.Conceptual Connection.Compute the ROI for the division with the new investment.Do you think the divisional manager will approve the investment?

4.Conceptual Connection. Compute the margin and turnover ratios for the division with the new investment.How do these compare with the old ratios?

5.Conceptual Connection.Compute the EVA of the division with and without the investment.Should the manager decide to make the knitting machine investment?