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 $18\%$ last year $($considering all divisions$).$ The new product line that headquarters wants Grenier's

East Division to add would require an investment of $$3,000,000.$ The cost and revenue characteristics of the new product line per year

would be as follows:

Sales

Variable expenses

Fixed expenses

$$9,000,000$

$65\%$ of sales

$$2,520,000$

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.$)$

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

multiple choice $1$

Accept

Reject

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

multiple choice $2$

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

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

Suppose that the company$$s minimum required rate of return on operating assets is $18\%$ 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.

Under these circumstances, if you were in Grenier$$s position, would you accept or reject the new product line?

multiple choice $3$

Accept

Reject