Management has determined that in order to upgrade the competitor to Megatronics standards, an additional $125,000 of invested capital would be needed.

1. Calculate the Northeast Division's ROI after acquisition of competitor but before upgrading. (Round your answer to 2 decimal place.

2. Assume that Megatronics uses residual income to evaluate performance and desires a 12 percent minimum return on invested capital. Compute the current residual income of the Northeast Division and the divisions residual income if the competitor is acquired.

Current Residual Income:

Residual Income if competitor is required:

Megatronics Corporation, a massive retailer of electronic products, is organized in four separate divisions. The four divisional managers are evaluated at year-end, and bonuses are awarded based on ROI. Last year, the company as a whole produced a 15 percent return on its investment. During the past week, management of the company's Northeast Division was approached about the possibility of buying a competitor that had decided to redirect its retail activities. (If the competitor is acquired, it will be acquired at its book value.) The data that follow relate to recent performance of the Northeast Division and the competitor: Sales Variable costs Fixed costs Invested capital Northeast Division $4,370,000 70% of sales $1,102,000 $ 950,000 Competitor $2,770,000 65% of sales $ 917,500 $ 200,000