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Question 3 (16 marks) a) Cartridge Company is a decentralized organization with several autonomous divisions. The division managers are evaluated, in part, on the basis of the change in their return on invested assets. Operating results for the Packer Division for 2021 are budgeted as follows: Sales $5,000,000 Less variable costs 2,500,000 Contribution margin 2,500,000 Less fixed expenses 1,800,000 Net operating income $700.000 Operating assets for the division are currently $3,600,000. For 2021, the division can add a new product line for an investment of $600,000. The new product line will generate sales of $1,600,000 and will incur fixed expenses of $600,000 annually. Variable costs of the new product will average 60% of the selling price. Required: i) What is the effect on ROI of accepting the new product line? (6 marks) ii) If the company's required rate of return is 6% and residual income is used to evaluate managers, would this encourage the division to accept the new product line? Explain and show computations. (4 marks) b) The Fitness Ltd has two divisions Yoga and Work-Out. Both divisions are independent and EVA is used as a performance indicator in their assessments. The weighted average costs of capital (WACC) for the Yoga and Work-Out are 8.3% and 9.2% respectively. The following data relate to the two divisions: Invested Capital Operating profit $ $ Yoga 745,000 780,000 Work-out 880,000 840,000 Required: i) Calculate the EVA for each division. (4 marks) ii) Comment on the two divisions' performance, based on the calculations obtained in i) above. (2 marks)