Colona Electronics Company paid $12 million in cash 5 years ago to acquire a company that manufactures CD-ROM drives. This company has been operated as a division of Colona and has lost $800,000 each year since its acquisition. The minimum desired return for this division is that, when a new product is fully developed, it should return a net profit of $800,000 per year for the foreseeable future. Recently, the MKS Corporation offered to purchase the division from Colona for $4 million. The president of Colona commented, "I've got an investment of $16 million to recoup ($12 million plus losses of $800,000 for each of 5 years). I have finally got this situation turned around, so I oppose selling the division now." Requirement 1. Prepare a response to the president's remarks. Indicate how to make this decision.

Fill in Blanks and choose the best answer in parenthesis

The $16 million is (Irrelevant/Irrelevant) for decision purposes. The company must consider whether to invest $______million in the division or invest it elsewhere. If projects or divisions of comparable risk can be expected to generate more than $_______

yearly, the division should be (held/sold)