Problem 1: Performance Measurement Bob is looking into adding a new product line to the Polymer division that he is currently managing at Egro Co. The new product line will require some additional investment. He has been working with the CFO on the feasibility and profitability of a new proposed product line. In addition to the Polymer division, the company also has Chemical, Fertilizer and Food divisions and all divisions are evaluated based on Return on Investments (ROI). Last year the total company reported an ROI of 15%. The cost and revenue characteristics is presented as follows.

Polymer Division (Performance 2021): Sales $28,600,000 Variable expenses 16,000,000 Contribution Margin 12,600,000 Fixed Expenses 10,000,000 Operating Income 2,600,000 Divisional operating assets 7,000,000

New Proposed Product Line (annual): Sales $12,000,000 Variable expenses 67% of sales Fixed Expenses $3,000,000 Added investment $4,500,00

Required: a) Compute Polymer Division's ROI for the current year and compute the Divisions ROI if the new product line were added. (Long Answer) b) If you were in Bob's position, would you be willing to accept or reject the new product line and why? (Short Answer) c) Why does the CFO want to add the new product line? (Short Answer) d) The company's minimum required rate of return on operating assets is 13%, compute Residual Income (RI) for last year and what it would be with the new product line. (Long Answer) e) Based on the results of part d) would you accept or reject the new product line and why? (Short Answer)