McKnight Ceramics, a division of Berkner Corporation, has an operating income of $85,000 and total assets of $425,000. The required rate of retum for the company is 9%. The company is evaluating whether it should use retum on investment (ROI) or re residual income (RI) as a measurement of performance for its division managers. The manager of McKnight Ceramics has the opportunity to undertake a new project that will require an investment of $175,000. This investment would eam $24,500 for the company. Read the requirements. Requirements Requirement 1. What is the original return on investment (R First determine the formula to calculate the ROI (Enter the percentage to two decimal places.) The original return investment (ROI) for McKnight Ceram Requirement 2. What would the ROI be for McKnight Cerar Why or why not? (Enter the percentage to two decimal place 1. What is the original return on investment (ROI) for McKnight Ceramics (before making any additional investment? 2. What would the ROI be for McKnight Ceramics if this investment opportunity were undertaken? Would the manager of the McKnight Ceramics division want to make this investment il she were evaluated based on ROI? Why or why not? 3. What is the ROI of the investment opportunity? Would the Investment he desirable from the standpoint of Berkner Corporation? Why or why not? 4. What would the residual income (RI) be for McKnight Ceramics if this investment opportunity were to be undertaken? Would the manager of the McKnight Cerarnics division want to make this investment if she were evaluated based on RI? Why or why not? 5. What is the Rl of the investment opportunity? Would the investment be desirable from the standpoint of Berkner Corporation? Why or why not? 6. Which performance measurement method, ROI or RI, promotes goal congruence? Why? his investment if she were evaluated based on ROI? If this investment opportunity were undertaken, the ROI wou If the manager of this division is evaluated based on ROI snc Requirement 3. What is the ROI of the investment opportun be to two decimal places.) The ROI of the investment opportunity is Print Done From the standpoint of Berkner Corporation this investment Requirement 4. What would the residual income (RI) be for McKnight Ceramics If this investment opportunity were to be undertaken? Would the manager of the McKnight Ceramics division want to make this investment if she were -...-...---- DILIL........... Requirement 1. What is the original return on investment (ROI) for McKnight Ceramics (before making any additional investment)? First determine the formula to calculate the ROI. . ROI (Enter the percentage to two decimal places.) The original return on investment (ROI) for McKnight Ceramics is %. Requirement 2. What would the ROI be for McKnight Ceramics if this investment opportunity were undertaken? Would the manager of the McKnight Ceramics division want to make this investment if she were evaluated based on ROI? Why or why not? (Enter the percentage to two decimal places.) If this investment opportunity were undertaken, the ROI would be %. If the manager of this division is evaluated based on ROI she want to make this investment. Investing in the new project would the division's ROI. Requirement 3. What is the ROI of the investment opportunity? Would the investment be desirable from the standpoint of Berkner Corporation? Why or why not? (Enter the percentage to two decimal places.) The ROI of the investment opportunity is %. From the standpoint of Berkner Corporation this investment desirable. The ROI of the investment opportunity Berkner's required rate of return. Requirement 4. What would the residual income (RI) be for McKnight Ceramics if this investment opportunity were to be undertaken? Would the manager of the McKnight Ceramics division want to make this investment if she were evaluated based on RI? Why or why not? First determine the formula to calculate the RI. X RI (Use parentheses or a minus sign for a negative RI.) The residual income (RI) for McKnight Ceramics if this investment opportunity were to be undertaken is If the manager of this division is evaluated based on RI she want to make this investment. The RI indicates that the division is earning than management's expectations. Requirement 5. What is the RI of the investment opportunity? Would the investment be desirable from the standpoint of Berkner Corporation? Why or why not? (Use parentheses or a minus sign for a negative RI.) The Rl of the investment opportunity is From the standpoint of Berkner Corporation this investment desirable. The Rl of the investment opportunity is meaning the investment opportunity would earn than management's target required return. Requirement 6. Which performance measurement method, Rol or RI, promotes goal congruence? Why? Of the two performance measurement methods, ROI and RI, is more likely to promote goal congruence. The Rl of the investment alone is the division's RI by that amount. This would motivate both the division manager and the company management to the investment. The arrival at the same conclusion by both the manager and company management goal congruence