"I know headquarters wants us to add that new product line," said Brian Stettler, manager of Sparks Products' Central Division. "But I want to see the numbers before I make a move. Our division's return on investment (ROI) has led the company for three years, and I don't want any letdown."

Sparks 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 Central Division for last year are given below:

Sales$22,000,000Variable expenses14,000,000

Contribution margin8,000,000Fixed expenses6,174,000

Net operating income$1,826,000

Divisional operating assets$5,500,000

The company had an overall ROI of 18% last year (considering all divisions). The company's Central Division has an opportunity to add a new product line that would require an investment of $3,430,000. The cost and revenue characteristics of the new product line per year would be as follows:

Sales$ 10,290,000

Variable expenses 65% of sales

Fixed expenses $ 2,870,910

Required:1.Compute the Central Division's ROI for last year; also compute the ROI as it would appear if the new product line is added.(Do not round intermediate percentage values. Round your final answers to 2 decimal places (i.e., 0.1234 should be entered as 12.34).)

ROI

Present: ? %

New product line alone: ? %

Total: ? %

2.) Suppose that the company's minimum required rate of return on operating assets is 15% and that performance is evaluated using residual income.

a.Compute the Central Division's residual income for last year; also compute the residual income as it would appear if the new product line is added.

RESIDUAL INCOME

Present: ?

New Product line alone: ?

Total: ?