Ocean, Inc. is a multidivision company. The current ROI for the company as a whole is 12%. The companys policy on minimum required rate of return is 10%. The most successful division within the company is Shellfish Division. Currently the Shellfish Division has total assets of $4,000,000 with operating income of $800,000. The manager of the Division is considering the purchase of a small company called Shrimp Inc. The purchase will require an investment of $800,000, and the synergy between the two companies will increase Shellfish Divisions operating income by $80,000. Bonuses in all of Ocean, Inc.s divisions are awarded to managers with increasing ROIs.

Required

What is the ROI for the Shellfish Division, before and after the proposed acquisition of Shrimp, Inc.?

What is the residual income for the Shellfish Division, before and after the proposed acquisition of Shrimp, Inc.?

If the Shellfish Division purchases Shrimp, Inc., and income increases as expected , what will happen to the ROI of Ocean, Inc.? ( No computation is needed.)