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PART 1 Rainy Days Inc. has assembled the following data for one of its divisions for the past year. Division B Sales $350,000 Variable expenses
PART 1 Rainy Days Inc. has assembled the following data for one of its divisions for the past year. Division B Sales $350,000 Variable expenses 25% of sales Fixed expenses $200.000 Average operating assets $250.000 Current return on investment 25.0% Minimum Required Rate of Return 19.5% Required: Calculate the residual income for Division B Enter your answer below with no dollar sign, no comma and round to the nearest dollar (2 marks) PART 2 Assume the manager of Division B at Rainy Days Inc. has an investment opportunity with a rate of return (ROR) of 24%. Required: Using the information from PART 1 above, state whether the manager would accept or reject this investment opportunity, and why, if: a. The manager is being evaluated based on return on investment (ROI). (2 marks) b. The manager is being evaluated based on residual income (RI). (2 marks)
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