brahima Duncan was debating the merits of a new product. Currently, the budgeted operating income

of the manufacturing division was $$1,450,000$ with average capital assets of $$7,250,000.$ The proposed

investment would add income of $$1,280,000$ and would require an additional investment in equipment

of $$8,000,000.$ The minimum required return on investment $($ROI$)$ for the company is $12\%.$ Round all

numbers to two decimal places.

Requirements:

$1.$ Compute the ROI of:

a$.$ The division if the project is not undertaken.

b$.$ The project alone.

c$.$ The division if the project is undertaken.

$2.$ Compute the residual income of:

a$.$ The division if the project is not undertaken.

b$.$ The project alone.

c$.$ The division if the project is undertaken.

$3.$ Do you suppose that Ibrahima will decide to invest in the new project? Why or why not?

$4.$ Should residual income be used to compare projects of different sizes? Why or why not?

AFM $123/$ ARBUS $102$ Accounting Information for Managers page $2$ of $3$