Problem 10-18 (Algo) Return on Investment (ROI) and Residual Income [LO10-1, LO10-2] 7 know headquarters wants us to add that new product line," said Dell Havasi, manager of Balings Company's Ortice Products Division. "But I want to see the numbers before I make any move. Our division's retum on investment (ROi) has led the company for three years, and I don't want any letdowr, : Billings Compony is a decentrolized wholesaler with flve aulonomous divisions. The divisions are evaluated on the basis of ROL, with year-end bonuses given to the divisional managers who have the highest ROIs, Operating results for the companys Office Products Division for this year are given below: The company had an overall retum on imventment (ROn of 1700 , this year (considering all divisions). Next year the Office Products Division has an opportunity to add o new product line that would require an additional investment that would increase average operating assets by $2,313,700. The cost and revenue charocteristics of the new product line per year would be: 1. Compute the Olfice Products Division's RO for this year. 2. Compute the Office Produets Division's Rol for the new product line by itselt. 3. Compute the Orfice Products Division's ROI for next year assuming that it performs the same as this year and adds the new product hine. 4. If you were in Dell Havasi's position, would you accept or reject the new product line? 5. Why do you suppose headquarters is anxious for the Otfice Products Division to add the new product fine? 6. Suppose that the company/s minimum required rate of retum on operating assets is 14% and that performance is evaluated using residual income. a. Compute the Office Procucts Division's residual income for this yenr. b. Compute the Office Products Division's residual incorne for the new product line by itself. c. Compute the Office Products Division's residual income for next year assuming that it performs the same as this year and adds the new product line d, Using the fesidual income appronch, if you were in Dell Havasks position, woutd you accept or fefect the riew product fine? Complete this question by enterino your answers in the tabs below. 1. Compute the otrice Froducts Divistons for for this yeat, 2. Compute the Office Products Division's ROE for the new product line by itself. 9. Compute the other Product Divisions por for nevt year asturning that it performs the same as this year and adds the new product line. (Do not round intermediate casculations, Round your onawers to 2 dectriel plactis.) Complete this question by entering your answers in the tabs below. 1. Compute the Office Products Division's Rot for this year. 2. Compute the office Products Division's RoI for the new product line by itself. 3. Compute the office Products Division's Rol for next year assuming that if performs the same as this year and adds the new product line. (Do not round Intermediate calculabions. Round your answers to 2 decimal places.) residual income. a. Compute the Olifice Products Division's residual income for this year: b. Compute the Office Products Division's residual income for the new product line by itselt. c. Compute the Office Products Division's residual income for next year assuming that it performs the same as this year and adds the new product line. d. Using the residual income approach, If you were in Delf Havasi's position, would you accept or reject the new product line? Complete this question by entering your answers in the tabs below. If you were in Dell Havasi's position, would you accept or reject the new product line? a. Compute the Otfice Products Division's residual income for this year. b. Compute the Office Products Division's residual income for the new product line by itself. c. Compute the Office Products Division's residual income for next year assuming that it performs the same as this year and adds t new product line. d. Using the residual income approach, if you were in Dell Havasi's position, would you accept or reject the new product line? Complete this question by entering your answers in the tabs below. Why do you suppose headquarters is anxious for the Office Products Division to add the new product line? Adting the now line woidd increase the compan/s oremill ROI. Adsing the new line would decrease the company's overal ROI Complete this question by entering your answers In the tabs below. 6. Suppose that the company's minimum required rate of return on operating assets is 14% and that performance is cvaluated using residual income. a. Compute the Olfice Products Division's residual income for this year b. Compute the Office Products Division's residual income for the new product line by itself. c. Compute the office Products Division's residual income for next year assuming that it performs the same as this year and adds the new product line. residual income. 3. Compute the Orfice Products Division's residual income for this year. b. Compute the Office Products Division's residual income for the new product line by itself. c. Compute the Office Products Division's residual income for next year assuming that it performs the same as this year and a new product line. d. Ushing the restduat income approach, if you were in Dett Havas's position, would you accept or reject the new product line? Complete this question by entering your answers in the tabs below. Using the residual income approach, if you were in Dell Havasis position, would you accept or reject the new product line