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eBook Show Me How Residual income and Investment Decisions Allard, Inc, presented two years of data for its froman Fonds Division and its Canned Foods Division Frozen Foods Division Sales Operating income Average operating assets Year 1 Year 2 $35,200,000 $37,700,000 1,360,000 1,550,000 10,450,000 10,400,000 Canned Division Year 1 Year 2 Sales $11,700,000 $12,500,000 Operating income 650,000 530,000 Average operating assets 5,850,000 5,850,000 At the end of year, the manager of the Canned Division is concerned about the division's performance. As a result, he is considering the opportunity to invest in two independent projects. The first is juice boxes for elementary school chidren. The second is fut and vegale pouches for kids on the go. Without the investments, the division expects that year 2 data will remain unchanged. The expected operating comes and the outlay required for each investment are as follows Juice Box Fruit Pouch Operating income $28.000 $15.300 Outlay 110,000 130,000 Allard's corporate headquarters has made available up to $530,000 of capital for this division. Any funds not invested by the division will be retained by readquarters and invested to come company's minimum required rate of return, 7 percent Required: Previous Check My Work or Check My Workoming Next) Required: 1. Compute the residual income for each of the opportunities (Round to the nearest dollar.) Juice Box residual income $ Fruit Pouch residual income 5 2. Compute the divisional residual income for each of the following four alternatives (Round to the nearest dollar.) a. The juice box is added . The fruit pouch is added c. Both investments are added d. Neither investment is made the status quo is maintained. $ Assuming that divisional managers are evaluated and rewardid on the basis of residual income, which alternative do you think the divisional manager will choose? 3. Assuming that management acts as you recommend in requirement 2, compute the change in profit (1058) from the divisional manager's investment dedsion, Was the correct decision made