"I know headquarters wants us to add that new product line," said Dell Havasi, manager of Billings Company's Offlee Products Division. "But I want to see the numbers before I make any move. Our division's return on investment (RO) has led the company for three years. and don't want any letdown? Billings Company is a decentralized wholesaler with five autonomous divisions. The divisions ore 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 glven below: The company had an overall return on investment (ROI) of 17.00% 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 $2,400,000, The cost and revenue characteristics of the new product line per year would ber Required: 1. 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. 4. If you were in Dell Havasi's position, would you accept or reject the new product line? 5. Why do you suppose headquarters is anxious for the Office Products Division to add the new product line? 6. Suppose that the company's minimum required rate of return on operating assets is 14% and that performance is evaluated using residual income. a. Compute the Orfice Products Division's residual income for this year. b. Compute the office Products Division's residuat income for the new product line by itself. c. Compute the Olife Products Division's residual income for next year assuming that it performs the same as this year and odds the new product line. d. Using the residual income approach, if you were in Dell Havasi's position, would you accept of reject the new product line? 1. 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. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Complete this question by entering your answers in the tabs below. If you were in Dell Havasl's position, would you accept or reject the new product line? Complete this question by entering your answers in the tabs below. 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. 6. Suppose that the company's minimum required rate of return on operating assets is 14% 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. Req 6A to 6C Accept
