Problem 11-18 Return on Investment (ROI) and Residual Income [LO111, LO1-21 2. If you were in Dell Havasi's position, would you accept or reject the new product line? 1 know headquarters wants us to add that new product line, said Del Havasi, manager of Bilings Companys Office Produats Division. But I want to see the numbers before I make any move. Our division's return on investment (ROl) has led the company for three years. and I don't want any letdown. O Accept O Reject Bilings Company is a decentralized wholesaler with five sutonomous divisions. The divisions are evaluated on the basis of ROl, with year-end bonuses given to the divisional managers who have the highest ROls. Operating results for the company's Office Products Division for the most recent year are given below: 3. Why do you suppose headquarters is anxious for the Office Products Division to add the new product line? O Adding the new line would increase the company's overall ROI Adding the new line would decrease the company's overall ROl. Sales 5 10,000,000 Variable expenses 6,000,000 Contribution margin 4,000,000 Fixed expenses Net operating income Divisional operating assets 3,200,000 800,000 S 4,000,000 4. Suppose that the company's minimum required rate of return on operating assets is 12% and that performance is evaluated using residual income a. Compute the Office Products Division's residual income for the most recent year, also compute the residual income as it would appear if the new product line is added The company had an overal return on investment (ROI) of 15% ast year (consdenng all divisions). The Office Products Division has an opportunity to add a new product ine that would require an additional investment in operating assets of $1,000,000. The cost and revenue characteristios of the new product line per year would be: New Line Total Operating assets Minimum required return Minimum net operating income Actual net operating income Minimum net operating income Residual income Sales Variable expenses Fixed expenses $2,000,000 00% of sales 5040,000 1. Compute the Office Products Divisions ROl for the most recent year also compute the ROl as it would appear if the new product line is added. (Round the decimal place) urnover", "Ror answers to 1 Sales Net operating b. Under these circumstances, if you were in Dell Havasi's position, would you accept or reject the Operating asets Margin Turnover ROI new product line? Accept O Reject