$$I know headquarters wants us to add that new product line,$$ said Dell Havasi, manager of Billings Company$$s Office Products Division. $$But I want to see the numbers before I make any move. Our division$$s return on investment $($ROI$)$ has led the company for three years, and I don$$t 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 company$$s Office Products Division for this year are given below:

Sales $ $23,000,000$

Variable expenses $14,365,000$

Contribution margin $8,635,000$

Fixed expenses $6,220,000$

Net operating income $ $2,415,000$

Divisional average operating assets $ $5,001,000$

The company had an overall return on investment $($ROI$)$ of $16\mathrm{.}00\%$ this year $($considering all divisions$).$ Next year the Office Products Division has an opportunity to add a new product line that would require an additional investment that would increase average operating assets by $$2,501,000.$ The cost and revenue characteristics of the new product line per year would be:

Sales $ $10,100,000$

Variable expenses $65\%$ of sales

Fixed expenses $ $2,644,900$

Compute the Office Products Division$$s ROI for this year.

$2.$ Compute the Office Products Division$$s ROI for the new product line by itself.

$3.$ Compute the Office Products Division$$s ROI for next year assuming that it performs the same as this year and adds the new product line.

Suppose that the company$$s minimum required rate of return on operating assets is $13\%$ and that performance is evaluated using residual income.

a$.$ Compute the Office Products Division$$s residual income for this year.

b$.$ Compute the Office Products Division$$s residual income for the new product line by itself.

c$.$ Compute the Office Products Division$$s residual income for next year assuming that it performs the same as this year and adds the new product line.