Debbie's Department income totals $200,000, investment in the department is $2,000,000, and the company's cost of capital is 8%.

Calculate the return on investment (ROI).

Calculate Residual Income (RI).

Assume there is a potential capital project available to managers that requires a $200,000 investment and will return $18,000. What happens to the ROI for Debbie’s Department? What happens to the Residual Income for Debbie’s Department? Would the department manager be more likely to accept the project if department performance was evaluated using ROI or economic value added? Why?