................................

Cape Distributors Limited of Sydney has two divisions: East Division and West Division. The East Division reported the following data for the scal year ended December 31, 2020: Sales $ 800,000 Operating income 1; 131500 Operating assets (average) $ 'l80,000 The East Division has an opportunity to add a new product line that would require an investment of $380,000. The company's accountant assembled the following cost and revenue characteristics of the new product as follows: Sales $ 400,000 Variable expenses 70% of sales Fixed expenses $ 65,000 Cape Distributors Limited had an overall ROI of 10% in 2020. Required: Round all calculations to two decimal places. a. Calculate East Division's ROI for 2020 [do not include the new product]. Your calculation must include margln and turnover. b. Calculate East Division's ROI for the new product only. Your calculation must include margin and turnover. c. Based on the ROI determined in \"b,\" would the manager of the East Division accept or reject the proposed new product line? Explain. d. Would the headquarters of Cape Distributors Lin1ited want the East Division to add the new product line? Explain why or why not. e. Suppose that the company's minimum required rate of return on operating assets is 14%. Management performance is evaluated using residual Income. i. Compute East Division's residual income for 2020 {do not include the new producti. ii. Compute East Division's residual income for the new product line only. iii. Under these circumstances. would the manager of Est Division accept or reject the new product line? Explain why