Management of Willis Company's Satellite Entertainment Division is considering investing in each of the three following projects. Available resources would allow management to select non, any or all of the projects if they found them worth the investment. The current after tax ROI of the satellite entertainment division using average net book value of assets is 16 percent and the divisions target ROI is 12 percent. Willis company's tax rate is 20 percent.

Year one before income tax

Project Year 1 Sales Income Cost of investment useful life salvage value

1 $4,000,000 $600,000 $4,800,000 5 years $0

2 $2,800,000 $480,000 $3,400,000 4 years $400,000

3 $1,500,000 $380,000 $2,100,000 3 years $0

1.) if the division manager is evaluated based on maintaining or improving after-tax ROI using average net book value of assets, which of these projects would he/she be inclined to accept?

2.) If the division manager were evaluated on residual income using after tax income and average net book value of the assets which of the projects would he/she be inclined to accept?

3.) Which of the projects are clearly good for the firm? Explain the rationale for your answer.