Faced with headquarters' desire to add a new product line, Stefan Grenier, manager of Bilti Products' East Division, felt that he had to

see the numbers before he made a move. His division's ROI has led the company for three years, and he doesn't want any letdown.

Bilti Products is a decentralized wholesaler with four autonomous divisions. The divisions are evaluated on the basis of ROI, with year$-$

end bonuses given to divisional managers who have the highest ROI. Operating results for the company's East Division for last year

are given below:

The company had an overall ROI of $12\%$ last year $($considering all divisions$).$ The new product line that headquarters wants Grenier's

East Division to add would require an investment of $$4,000,000.$ The cost and revenue characteristics of the new product line per year

would be as follows:

Sale: $$12,000,000$

Variable expenses $604$ of andes

Fixed expenses

$$4,200,000$

Required:

Compute the East Division's ROI for last year; also compute the ROI as it would appear if the new product line were added. $($Do not

round intermediate calculations. Round your final answer to the nearest whole number.$)$

If you were in Grenier's position, would you accept or reject the new product line?

Accept

Reject

Why do you suppose headquarters is anxious for the East Division to add the new product line?

Adding the new line would increase the company's overall ROI.

Adding the new line would decrease the company's overall ROI.

Suppose that the company's minimum required rate of return on operating assets is $10\%$ and that performance is evaluated using

residual income.

a$.$ Compute East Division's residual income for last year; also compute the residual income as it would appear if the new product line

were added.