EXERCISE 3. Refer to Exercise 2. At the end of Year 2, the manager of the Houseware Division is concerned about the division's performance. As a result, he is considering the opportunity to invest in two independent projects. The first is called the Espresso-Pro; it is an in-home espresso maker that can brew regular coffee as well as make espresso and latte drinks. While the market for espresso drinkers is small initially, he believes this market can grow, especially around gift-giving occasions. The second is the Mini-Prep appliance that can be used to do small chopping and dicing chores that do not require a full-sized food processor. Without the investments, the division expects that Year 2 data will remain unchanged. The expected operating income and the outlay required for each investment are as follows: Espresso-Pro Mini-Prep Operating income P 27,500 P 19,000 Outlay 250,000 200,000 Jarriot's corporate headquarters has made available up to P500,000 of capital for this division. Any funds not invested by the division will be retained by headquarters and invested to earn the company's minimum required rate of return, 9 percent. 1. Compute the (a) ROI and (b) residual income for each investment. 2. Compute the (a) divisional ROI (rounded to four significant digits) and (b) divisional residual income (rounded to the nearest peso) for each of the following alternatives: Alternative One: The Espresso-Pro is added. Alternative Two: The Mini-Prep is added. Alternative Three: Both investments are added. Alternative Four: Neither investment is made; the status quo is maintained. 3. Which alternative do you think the divisional manager will choose if the manager is evaluated and rewarded on the basis of (a) ROI and (b) residual income performance