Hatrick Ltd (Hatrick) is a multi-divisional company with interests spread across the music industry. Divisional managers are encouraged to act autonomously and identify, develop and pursue innovative investment opportunities. The performance of divisional managers is assessed using residual income (RI) where the hurdle rate to be used is 8.5% and RI is expected to increase each year. Freya is the divisional manager of the Percussion division which engages in the design, production, distribution and marketing of a variety of musical instruments. Percussion has assets of $65 million and Freya is looking forward to a favourable performance evaluation, to facilitate a high bonus. Freya has been presented with three investment opportunities for Percussion: A. An $7 million acquisition of a business with technology that would significantly enhance Percussion's current capabilities and open up new market opportunities. Percussion's engineers have advised that the acquisition is not expected to generate profits in the first two years due to the cost of integration into Percussion's core operations. Over the life of the project the ROlis expected to be 14% B. A $5 million replacement of one of Percussion's production lines which has become unreliable The proposed replacement is an automated line that will produce higher quality product at lower operating costs. Significant training is required to get operating and maintenance crews up to speed. The investment is expected to yield an annual ROI of 10% for the first two years and 15% over the useful life of 6 years. C. A $3 million refurbishment of one of Percussion's production lines to extend its useful life by at least 4 years. The investment is expected to yield an annual ROI of 13.5% for each of the first three, after which returns will deteriorate and an upgrade will eventually be required. Which one(s) does the existing performance evaluation process encourage her to pursue in the short-term?