Holiday, Inc. has been in business for over 75 years, making a variety of holiday related items Tiny Elf recently joined the business as vice president of the Inflatables Division, one of the company's newest divisions. During his first week on the job, Tiny met with CEO Winter E. Wonderland to discuss the division's future. "I know we're one of the newest and smallest division in the company," Tiny said, "but I think we're in a position to realize some dramatic growth through product line expansion. We've got a full pipeline of products under development, and I'd like to speed up development of a couple of those products. If we work hard, I think we can have the new Rapid Inflator ready for release by the end of the year." Winter thought for a minute and then replied. "That sounds like a good idea, Tiny. I just don't want you to move so fast that you don't have a good understanding of how the introduction of the new products will impact the division's performance. Remember, I'm a big fan of maintaining our return on investment." Tiny went back to his office after the meeting and began to crunch the numbers on the rapid Inflator. At a price selling price of $10 per unit, the marketing department estimates demand for the product at 40,000 units. The division will need to purchase a new machine for $1,150,000 to produce the inflator. Mary estimates that the division will incur $2 per unit in costs to make the Inflator plus an additional $140,000 increase in total fixed costs that are directly attributable to the inflator. The Inflatables Division currently earns $250,000 on $2.5 million in sales revenue. The division has an asset base of $1,250,000. Tiny knows that Winter will not be happy if the new product reduces the division's return on investment: Dod Required: 1. What is the Inflatable Division's current return on investment (without the new Investment)? 2. What is the Inflatable Division's Rol with the new investment? 3. Suppose that Winter has decided to evaluate divisional vice presidents based on residual income rather than return on investment. If she requires a 16% minimum rate of return, will Tiny still want to produce the inflators? Why or why not? Hint: Find Rl for the investment 4. What do you recommend