Cape Distributors Limited of Sydney has two divisions: North Division and South Division. The North Division reported the following data for the fiscal year ended December 31, 2020:

Sales

$ 800,000

Operating income

$ 132,000

Operating assets (average)

$790,000

The North Division has an opportunity to add a new product line that would require an investment of $400,000. The company's accountant assembled the following cost and revenue characteristics of the new product as follows:

Sales

$500,000

Variable expenses

75% of sales

Fixed expenses

75,000

Cape Distributors Limited had an overall ROI of 10% in 2020.

Required:Round all calculations to two decimal places.

1. Calculate North Division's ROI for 2020 (do not include the new product).Your calculation must include margin and turnover.
2. Calculate North Division's ROI for the new product only.Your calculation must include margin and turnover.
3. Based on the ROI determined in "b," would the manager of the North Division accept or reject the proposed new product line? Explain.
4. Would the headquarters of Cape Distributors Limited want the North Division to add the new product line? Explain why or why not.
5. Suppose that the company's minimum required rate of return on operating assets is 12%. Management performance is evaluated using residual income.
6. Compute North Division's residual income for 2020 (do not include the new product).
7. Compute North Division's residual income for the new product line only.
8. Under these circumstances, would the manager of North Division accept or reject the new product line?Explain why.