Problem 11:18 Return on investment (ROI) and Residual income (LON.LO11-21 He know headquarter want us to add that new product Dell Havasi, manager of Bling Company Omice Products Division. But I want to see the number before make any move our division's recum onnestent (ROI) has led the company for three years, and I don't want any down Billings Company is a decentralized wholesale with five autonomous divisions. The divisions are evaluated on the basis of ROL 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 les 21.200.000 Variable penes 3 contribution in Fixed Expo 2006 Net operating the ILIRIDA DEVIntonal average operating 4,240.000 Net The company had an overall return on investment Roof 19.00% this year Iconsidering 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 $2,600,000. The cost and revenue characteristics of the new produ une per year would be Bales Variable expenses axed expenses $100,000 650 male 52.53.900 Required: 1 Compute the Office Products Division's ROI for this yeat. 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 product line. 4. If you were in Dell Havasi's position, would you accept or reject the new product tine? 5. Why do you suppose headquarters is anxious for the Office Products Division to add the new product Hine? 6. Suppose that the company's minimum required rate of return on operating assets is 15% 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 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 the questie by entering your answers in the tabs below. RS 4 HA 1. computer Om os DivXROIN this year 2. compute womce Products Ottenew Computerome Products Division for at varming the same year and adds EN produce the (round werden Round your and WA RDE Renew produce by ROLE Re 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 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 return on operating assets is 16% 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 Havasi's position, would you accept or reject the new product line? Complete this question by entering your answers in the tabs below. Reg 1 to 3 Reg4 Regs Req6A to 6C Reg 60 6. Suppose that the company's minimum required rate of return on operating assets is 16% and that performance is evaluated using residual income a. Compute the once 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. Show less 1. Residual income for this yeu 2.Residual income for the new product line by itself 3. Residual income for next year Regs Reg D >
