. Key information for the Plant City Division (PCD) of Barkley Industries for 2019 are as follows:

Revenues

$15,000,000

Operating Income

1,800,000

Total Assets

10,000,000

PCD managers are evaluated and rewarded on the basis of ROI defined as operating income divided by total assets. Barkley Industries expects its divisions to increase ROI each year.

Next year, 2020, appears to be a difficult year for PCD. PCD had planned a new investment to improve quality but, in view of poor economic conditions, has postponed the investment. ROI for 2020 was certain to decrease if PCD had made the investment.

Management is now considering ways to meet its target ROI of 20% for next year. It anticipates revenues to be steady at $15 million in 2020.

Required:

(a)Calculate PCD's return on sales and ROI for 2019.

(b)

(1) By how much would PCD need to cut costs in 2020 to achieve its target ROI of 20%, assuming no change in total assets between 2019 and 2020?

(2) By how much would PCD need to decrease total assets in 2020 to achieve its target ROI of 20%, assuming no change in operating income between 2019 and2020?

(c)Calculate PCD's Residual Income (RI)* in 2019, assuming a required rate ofreturn on investment of 15%.

(d)PCD wants to increase RI by 50% in 2020. Assuming it could cut costs by $45,000 in 2020, by how much would PCD need to decrease total assets in 2020?

(e)Barkley Industries is concerned that the focus on cost cutting, asset sales and no new investments will have an adverse long-run effect on PCD's customers. Yet Barkley wants PCD to meet its financial goals. What other measurements, if any do you recommend that Barkley use? Explain briefly.