New Orleans, Inc., is a multidivisional company. The current ROI for New Orleans, Inc. as a whole is 12 percent. New Orleans, Inc. has a minimum required rate of return on all investments of 10 percent. Bonuses in all the New Orleans's divisions are awarded to the manager with increasing ROls. The most successful division within New Orleans, Inc. is the Shellfish Division. Currently the Shellfish Division has total assets of $4,000,000 with operating income of $800,000 and current liability of $1,000,000. The manager of the Shellfish Division is considering the purchase of a small company called Shrimp, Inc. The purchase of Shrimp, Inc., will require an investment of $1,000,000 and with the synergy between the two companies will increase the Shellfish Division operating income by $100,000. Required: 1. What are the ROI and Residual Income for the Shellfish Division, before and after the proposed purchase of Shrimp, Inc.? (8 points) 2. If the Shellfish Division purchases Shrimp, Inc., and income increases as expected, Do you think New Orleans's will support this purchase project? (2 points) 3. Given the current bonus structure within New Orleans, Inc., and assuming the manager of the Shellfish Division is a self- maximizing individual; would the Shellfish manager go ahead with the purchase project? Explained. (2 points) 4. New Orleans Inc, whose tax rate is 30%, has two sources of funds: long-term debt with a market value of $15,000,000 and an interest rate of 10%, and equity capital with a market value of $9,000,000 (book value of $5,000,000) and a cost of equity of 15%. Now assume the manager of New Orleans's Division is evaluated based on EVA for merit pay and promotion. Would the Shellfish manager want to go ahead with this purchase project? Explained. (7 points) 5. New Orleans's Inc has decided to adopt a balanced Scorecard to monitor performance including for Shellfish Division. The company's strategy is to be the low-cost leader in the industry. The initial scorecard recommended by a consultant includes the following measures in each of the perspectives: Financial, Customer, Internal Business Process, and Learning and Growth. For Financial perspective, the objective masurement has been decided as increased ROI and increased profitability. Make a recommendation of objective measurement for the other three perspectives (2 measure for each perspective). (6 points)