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 Billings Company's Olfice Products Division. "But I want to see the numbers before I make any move. Our division's return on investment (ROI) has led the company for three years, and I don't want any letdown" Billings Company is a decentralized wholesaler with five autonomous divisions. The divisions are evaluated on the basis of ROI, with yearend bonuses given to the divisional managers who have the highest ROIs. Operating results for the company's Office Products Division for this year are given below. The company had an overall return on investment (ROI) of 16.00% this year (considering all divisions) Next year the Office Products Division has an opportunity to add a new product line that would require an additional investment that would increase average operating assets by $2.501000. The cost and revenue characteristics of the new product line per year would be: Required: 1. Compute the Office Products Division's ROl for this year 2. Compute the Office Products Division's ROI for the new product line by itselt 3. Compute the Office Products Division's ROi for next year assuming that it performs the same as this year and adds the new product line. 4. If you were in Dell Havasis position, would you accept or reject the new product line? 5. Why do you suppose headquarters is andious for the Office Products Division to add the new product line? 6 Suppose that the company's minimum required rate of retum on operating assets is 13%, and that performance is evaluated using residuat income. a. Compute the Office Products Division's renidual 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 yeat and adds the 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? Required: 1. Compute the Office Products Division's ROI for this year. 2. Compute the Oifice Products Division's Rol for the new product line by itself. 3. Compute the Office Products Division's ROI for next year assuming that it performs the same as this year and adds the new produ line. 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 Office Products Division to add the new product line? 6. Suppose that the company's minimum required rate of return on operating assets is 13% and that performance is evaluated using residual income. a. Compute the Office Products Division's residual income for this yeat: 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. d Using the residua income approach, if you were in Dell Havasis position, would you accept or reject the new product line? Complete this question by entering your answers in the tabs below. 1. Compute the orfice Products Diviston's Rol for this year. 2. Compute tho office Products Division's Ror for the now product lina by itsell. 3. Compute the Office Products Olvision's Rol for next year ascuming that it performs the sarne as this year and adds the new product linge the company had an overall return on investment (RO) of 16.00% this year (considering all divisions). Next year the Otfice Product Division has an opportunity to add a new product line that would require an additional investment that would increase average operating assets by $2,501000 The cost and revenue characteristics of the new product line per year would be: Required: 1. Compute the Office Products Division's Ror 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 it performs the same as this year and adds the new proo line. 4. If you were in Dell savasi's position, would you accept or reject the new product line? 5. Why do you suppose headquarters is anxious for the Office Products Division to add the new product line? 6. Suppose that the company's minimum required rate of retum on operating assets is 13% and that performance is evaluated using residual income. a. Compute the Olfice Products Division's residual income for this yeat b. Compute the OHice Products Division's residual income for the new product line by itseif. c. Compute the Office Products Division's residcalincome for next year assuming that it performs the same as this year and adds th new productine. new product line. d. Using the residual income approach, if you were in Dell Havasis 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 Havas's position, would you accept or refect the new product line? operating assets by $2,501,000. The cost and revenue characteristics of the new product line per year would be: SalesVarfableexpensesFixedexpenses$10,100,06065%ofsales$2,644,900 Required: 1. Compute the Office Products Division's ROI 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 ROI for next year assuming that it performs the same as this year and adds the new proc line. 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 Office Products Division to add the new product line? 6. Suppose that the company's minimum required rate of retum on operating assets is 13% and that performance is evaluated usin residual income. a. Compute the Office 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 residuat 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? Required: 1. Compute the Office Products Division's ROI 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 it performs the same as this year and adds the new product line 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 Office Products Division to add the new product line? 6. Suppose that the company's minimum required rate of retum on operating assets is 13% and that performance is evaluated using residual income. a. Compute the Office 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: d. Using the residual income approach, if you were in Dell Havasis position, would you accept or reject the new product line? 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 13% and that performance is evaluated using residual income. i. Compute the office Products Division's residual income for this year. b. Compute the Office Products Division's residual income for the now 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. The company had an overall return on investment (RO) of 1600% this year (considering all divisions) Next year the Office Products Division has an opportunity to add a new product line that would require an additionat investment that would increase average operating assets by $2,501,000. The cost and revenue characteristics of the new ptoduct line per year would be Required: 1. Compute the Office Products Division's ROI for this year. 2. Compute the Office Products Division's ROI for the new product line by itselt 3. Compute the Ofice Products Division's ROI for next year assuming that if performs the same as this year and adds the new product line. 4. If you were in Dell Havasi's position, would you accept or reject the new product ine? 5. Why do you suppose headquarters is anxious for the Office Products. Division to add the new product line? 6. Suppose that the company's minimum required rate of return on operating assets is 13% and that performance is evaluated using residual income. a. Compute the Oifice Products Division's residual income for this yeat: 6. Compute the Office Products Division's residual income for the new product tine by itsell. 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 Dell HavJasis position, would you accept or teject the new prociuct ine? Complete this question by entering your answers in the tobs below. Using the residual income approach, if you were in Dell Havasis postion, would you accept or reject the new product line