Kaiser Industries produces tool and die machinery for manufacturers. The company acquired Superior Steel Company, one of its suppliers of alloy steel plates. Kaiser decided to maintain Superior's separate identity and therefore established the Superior Steel Division as one of its investment centres. Kaiser evaluates its divisions on the basis of ROI. Management bonuses are also based on ROI. All investments in operating assets are expected to earn a minimum rate of return of 11%. Superior's ROI has ranged from 14% to 17% since it was acquired by Kaiser. During the past year, Superior had an investment opportunity that would yield an estimated rate of return of 13%. However, Superior's management decided against the investment because it believed the investment would decrease the division's overall ROI. Last year's income statement for Superior Steel Division follows. The division's operating assets employed were $6,480,000 at the end of the year, which represents an 8% increase over the previous year-end balance. Superior Steel Division Divisional Income Statement For the Year Ended December 31 Sales Cost of Goods Sold Gross Margin $15,600,000 ($8.250,000) $7,350,000 Less: Operating Expenses Selling expenses Administrative Expenses $2,810,000 $3,604,000 $6,414,000 Operating Income $936.000 Required: a) (6 marks) Compute ROI and Residual Income b) (3 marks) Would the management of Superior Steel Division have been more likely to accept the investment opportunity it had last year if residual income were used as a performance measure instead of ROI? Explain.