Pharmaceutical t nrms, oll and gas companies, and other ventures inevitably incur costs on unsuccessful investments in new projects (e g. new drugs or new wens) For oll and gas firms, a debate continues over whether those costs should be written off as a period expense or capitalized as part of the full cost of finding profitable oll and gas ventures. For pharmaceutical firms, GAAP in the United States is clear that R&D costs are to be expensed when incurred Pharm-it has been writing R&D costs off to expense as incurred for both financial reporting and internal pertormance measurement However, this year a new management team was hired to improve the profnt of Pharm-It's Cardiology Division. The new management team was hired with the provision that it would receive a nus equal to 10 percent of any profits in excess of base-year profits of the division. However, no bonus would be paid if profits were less than 20 percent of end-of year investment. The following information was included in the performance report for the division Increase over Base Year This Year Sales revenues Costs incurred Base Year 5 20,500,000 R&D Expense Depreciation and other amortization Other costs 3,900,000 8,000,000 $ 9,000,000 4.100,000 3,750,000 7750 000 S 4900,000 Division profit 00:0004,100,000 End-of-year investment Includes other investments not at issue here During the year, the new team spent $5 million on R&D activities, of which $4,500,000 was for unsuccessful ventures. The new management team has included the S 34,500,000 $4,500,000 in the current end of year investment base because "You can't invent successtul drugs without missing on a few unsuccessful ones Required: a. what is the ROI for the base year and the current year? ignore taxes (Enter your answer as a parcentage rounded to t decmal place (.e. 32.1).) a-1. If R&D is expensed Base year Current year a-2. If R&D is capitaized Current year b. What is the amount of the bo nus that the new management team is likely to claim? (Enter your answer in dollars, not in millions c. If you were on Pharm-ir's board of directors, how would you respond to the new management's claim for the bonus? O The board should reject the request for a bonus O The board should accept the request for a bonus