Blackwood Industries manufactures die machinery. To meet its expansion needs, it recently (2020) acquired one of its suppliers, Delta Steel. To maintain Delta's separate identity, Blackwood reports Delta's operations as an investment center. Blackwood monitors all of its investment centers on the basis of return on investment (ROI). Management bonuses are based on ROI, and all investment centers are expected to earn a minimum 10% return before income taxes.

Delta's ROI has ranged from 14% to 18% since 2020. The company recently had the opportunity for a new investment that would have yielded a 13% ROI. However, division management decided against the investment because it believed that the investment would decrease the division's overall ROI.

The 2022 operating statement for Delta follows. The division's operating assets were $28,800,000 at the end of 2022, a 10% increase over the 2021 year-end balance.

DELTA DIVISION
Operating Statement
For Year Ended December 31, 2022 (000s omitted)
Sales		$ 77,500
Cost of goods sold		50,375
Gross profit		27,125
Operating expenses:
Administration	$ 10,808
Selling	11,532	22,340
Operating income		$ 4,785

Required:

1. Calculate the following performance measures for 2022 for the Delta division:

a. Return on average investment in operating assets. (Round your final answer to 2 decimal places.)

b. Residual income (RI) calculated on the basis of average operating assets. (Enter your answer in whole dollars.)

2. Which performance measure (ROI or RI) should Blackwood Industries use to provide the proper incentive for each division to act autonomously in the firm's best interests? Would Delta's management have been more likely to accept the capital investment opportunity if RI had been used as a performance measure instead of ROI? Explain.