I know headquarters wants us to add that new product line, said Dell Havasi, manager of Billings Companys Office Products Division. But I want to see the numbers before I make any move. Our divisions return on investment (ROI) has led the company for three years, and I dont want any letdown.

Billings Company is a decentralized wholesaler with five autonomous divisions. The divisions are evaluated on the basis of ROI, with year-end bonuses given to the divisional managers who have the highest ROIs. Operating results for the companys Office Products Division for the most recent year are given below:

The company had an overall return on investment (ROI) of 16.00% last year (considering all divisions). The Office Products Division has an opportunity to add a new product line that would require an additional investment in operating assets of $2,501,500. The cost and revenue characteristics of the new product line per year would be:

Required:

Compute the Office Products Divisions ROI for the most recent year; also compute the ROI as it would appear if the new product line is added. (Round the "Margin", "Turnover" and "ROI" answers to 2 decimal places.)

2. If you were in Dell Havasis position, would you accept or reject the new product line?

-Accept

-Reject

3. Why do you suppose headquarters is anxious for the Office Products 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.

4. Suppose that the companys minimum required rate of return on operating assets is 13.00% and that performance is evaluated using residual income.

a. Compute the Office Products Divisions residual income for the most recent year; also compute the residual income as it would appear if the new product line is added.