Orion Ltd. Balance Sheet as at October 31, 2021 ASSETS CURRENT 2021 2020 2019 Cash 10,250 43,100 17,025 Accounts receivable 83,300 92,700 63,400 Inventory 115,600 108,400 81,700 Interest receivable 2,375 1,125 900

Total 211,525 245,325 163,025

CAPITAL Land 247,500 187,500 187,500 Buildings 280,000 280,000 260,000 Accumulated depreciation, buildings (100,800) ( 89,600) ( 79,100) Equipment 164,400 130,400 122,500 Accumulated depreciation, equipment ( 93,000) ( 78,900) ( 68,900)

Total 498,100 429,400 422,000

INTANGIBLE Trademarks, net 13,200 15,400 17,300

Total 722,825 690,125 602,325

LIABILITIES CURRENT Accounts payable 87,200 64,100 53,200 Salaries payable 2,500 2,000 1,800 Interest payable 4,100 3,900 2,100 Income taxes payable 3,500 5,700 1,000

Total 97,300 75,700 58,100

LONG TERM Mortgage payable 170,000 180,000 120,000 Bonds payable - 50,000 30,000

Total 170,000 230,000 150,000

SHAREHOLDERS' EQUITY SHARE CAPITAL Common stock 200,000 200,000 200,000 RETAINED EARNINGS 255,525 184,425 194,225 Total 455,525 384,425 394,225

Total 722,825 690,125 602,325

Orion Ltd. Income Statement for the year ended October 31, 2021 2021 2020 Sales revenue 854,200 622,500 Cost of goods sold 512,700 364,100 Gross profit 341,500 258,400 Operating expenses Amortization 2,200 1,900 Depreciation 25,300 20,500 Salaries and benefits 132,600 121,200 Office and administrative 82,500 77,000

Total 242,600 220,600

Operating income 98,900 37,800 Other items Interest revenue 9,500 7,000 Interest expense ( 11,000) ( 14,000) Loss on retirement of bonds ( 3,300) -

Total ( 4,800) ( 7,000)

Income before tax 94,100 30,800 Income tax expense 18,200 6,200 Net income 75,900 24,600

Retained earnings, start of year 184,425 194,225

Total 255,425 218,825 Less: Dividends declared 4,800 34,400 Retained earnings, end of year 255,525 184,425

Required: a) Using the Dupont method, calculate the ROI for Orion for 2021 and 2020. Explain what each of the two components of the DuPont method tell the company about its performance in 2021 compared to its performance in 2020.

b) What could Orion compare its 2021 ROI to, instead of its previous year's ROI? Describe one reason the prior year is preferable to the alternative.

c) Compute the residual income for each of 2021 and 2020 if Orion's weighted average cost of capital is 10% each year.

d) Orion has an investment opportunity for 2022 that is expected to generate additional annual operating income of $140,000, with an additional investment in operating assets of $1,000,000. The 2021 operations are expected to generate the same revenues and operating expenses in future years. Calculate the projected 2022 ROI (not DuPont method) using the full cost of the new investment. Explain whether or not the company should make the investment, and whether management is likely to go ahead with the investment if ROI is used to measure performance. Why is this outcome likely?