Example 1
Base Facts	Branch A	Branch B
Profit before taxes	$250,000	$1,000,000
Investment	$5,000,000	$5,000,000
ROI	5%	20%
ROI Bonus	5.8%	18.3%
New investment opportunity to invest $1,000,000 to earn $100,000 per year

Example 2
Base Facts	Branch C	Branch D
Profit before taxes	$250,000	$1,250,000
Investment	$2,500,000	$12,500,000
ROI	10%	10%
ROI Bonus	12.9%	10.7%
New investment opportunity to invest $1,000,000 to earn $200,000 per year

Using only Example 1, calculate the residual income for both branches both before and after the new investment opportunity, using a capital charge of 5%. Comment on any noted differences.

What are the measurement alternatives involved with using ROA as a performance measure? For example, in what ways can income be measured? In what ways can assets be measured?

What action should Higgins take in response to the question raised by Larry Hoffman, the Denver Branch Manager?

In your view, what are the advantages and disadvantages of ROI as a performance measure? What explains its longstanding popularity?