Preston Ceramics, a division of LaChut Corporation, has an operating income of $85,000 and total assets of $425,000. The required rate of return for the company is 12%. The company is evaluating whether it should use return on investment (ROI) or residual income (RI) as a measurement of performance for its division managers. The manager of Preston Ceramics has the opportunity to undertake a new project that will require an investment of $175,000. This investment would earn $24,500 for the company. Read the fequirement Requirement 1. What is the original return on investment (ROI) for Preston Ceramics (before making any additional investment)? First determine the formula to calculate the ROI. Operating income Total assets ROI (Enter the percentage to two decimal places.) The original return on investment (ROI) for Preston Ceramics is 20% Requirement 2. What would the ROI be for Preston Ceramics if this investment opportunity were undertaken? Would the manager of the Preston Ceramics division want to make this investment if she were evaluated based on ROI? Why or why not? (Enter the percentage to two decimal places.) If this investment opportunity were undertaken, the ROI would be 18.25% If the manager of this division is evaluated based on ROI she would not want to make this investment. Investing in the new project would decrease the division's ROI. Requirement 3. What is the ROI of the investment opportunity? Would the investment be desirable from the standpoint of LaChut Corporation? Why or why not? (Enter the percentage to two decimal places.) Get more help- Clear all Final check Points: 0.5 of 1 Preston Ceramics, a division of LaChut Corporation, has an operating income of $85,000 and total assets of $425,000. The required rate of return for the company is 12%. The company is evaluating whether it should use return on investment (ROI) or residual income (RI) as a measurement of performance for its division managers. The manager of Preston Ceramics has the opportunity to undertake a new project that will require an investment of $175,000. This investment would earn $24,500 for the company. Read the focuremen It this investment opportunity were undertaken, me KUI Would De 10.40% If the manager of this division is evaluated based on ROI she would not want to make this investment, Investing in the new project would decrease the division's ROI. Requirement 3. What is the ROI of the investment opportunity? Would the investment be desirable from the standpoint of LaChut Corporation? Why or why not? (Enter the percentage to two decimal places.) The ROI of the investment opportunity is 14% From the standpoint of LaChut Corporation this investment is desirable. The ROI of the investment opportunity is more than LaChut's required rate of return. Requirement 4. What would the residual income (RI) be for Preston Ceramics if this investment opportunity were to be undertaken? Would the manager of the Preston Ceramics division want to make this investment if she were evaluated based on RI? Why or why not? First determine the formula to calculate the RI. Operating income Total assets Target rate of return) RI (Use parentheses or a minus sign for a negative RI.) The residual income (RI) for Preston Ceramics if this investment opportunity were to be undertaken is Get more help Clear all Final check Requirements 1. What is the original return on investment (ROI) for Preston Ceramics (before making any additional investment)? 2. What would the ROI be for Preston Ceramics if this investment opportunity were undertaken? Would the manager of the Preston Ceramics division want to make this investment if she were evaluated based on ROI? Why or why not? 3. What is the ROI of the investment opportunity? Would the investment be desirable from the standpoint of LaChut Corporation? Why or why not? 4. What would the residual income (RI) be for Preston Ceramics if this investment opportunity were to be undertaken? Would the manager of the Preston Ceramics division want to make this investment if she were evaluated based on RI? Why or why not? 5. What is the RI of the investment opportunity? Would the investment be desirable from the standpoint of LaChut Corporation? Why or why not? 6. Which performance measurement method, ROI or RI, promotes goal congruence? Why? Print Done