Effect of Proposals on Divisional Performance A condensed income statement for the Electronics Division of Gihbli Industries Inc. for the year ended December 31 is as follows: Assume that the Electronics Division received no cost allocations from service departments. The president of Gihbli Industries Inc. has indicated that the division's return on a $2,800,000 investment must be increased to at least 22.4% by the end of the next year if operations are to continue. The division manager is considering the following three proposals: less than the amount of depreciation expense on the old equipment by $100,800. This decrease in expense would be included as part of the cost of goods sold. Sales would remain unchanged. Proposal 2: Reduce invested assets by discontinuing a product line. This action would eliminate sales of $595,000, reduce cost of goods sold by $397,600, and reduce operating expenses by $175,000. Assets of $1,417,600 would be transferred to other divisions at no gain or loss. Proposal 3: Purchase new and more efficient machinery and thereby reduce the cost of goods sold by $369,600 after considering the effects of depreciation expense the new equipment. Sales would remain unchanged, and the old machinery, which has no remaining book value, would be scrapped at no gain or loss. The new machinery would increase invested assets by $1,400,000 for the year. 2. Prepare condensed estimated income statements and compute the invested assets for each proposal. Gihbli Industries Inc. -Electronics Division Estimated Income Statements 3. Using the DuPont formula for return on investment, determine the profit margin, investment turnover, and return on investment for each proposal. Round interim calculations (including previously calculated) and final answer to one decimal place. 4. Which of the three proposals would meet the required 22.4% return on investment. Proposal 1 Proposal 2 Proposal 3 5. If the Electronics Division were in an industry where the profit margin could not be increased, how much would the investment turnover have to increase to meet interim calculations (including previously calculated) and final answer to one decimal place. %