Durham Division of ABC Corp. has an average operating assets of $12,000,000. It expects to earn $1,800,000 for the coming year. The manager has the opportunity to acquire a successful existing business at =the start of the year for $3,000,000. the new business is expected to earn $330,000. The earnings of both divisions are expected to be typical of future years.

A. If the manager of Durham is evaluated on teh basis of ROI, will she make the aquisions? Explain.

B. If the manager is evaluated on residual income, will she make the aquisition? Explain. Assume the hurdle rate for residual income is 9%.