Destiny Auto Group is looking at new investment opportunity in Central Alberta, Peace Hills Kia. The company is currently for sale & can be bought for a total purchase price of $$8,000,000.$ Destiny Auto Group has a required rate of return of $11\%.$ The company investment is defined as purchase price$)$ & residual income.

Requirement:

Calculate the rate of return, using both Return on investment & residual income for the potential purchase of Peace Hills Kia $(3$ marks$)$

Peace Hills Kia would be placed into the Alberta division. The ROI of the Alberta division is historically $15\%.$ In order to ensure that profitable investments $($based on the Groups required rate of return$)$ are not turned down, what method should be selected? Why? Include a discussion on underinvestment $(3$ mark$)$