Problem 11-21 Return on Investment and Residual Income [LO3, LO4] Faced with headquarters' desire to add a new product line, Stetan Greniec, manager of Biti Products' East Division, felt that he had to see the numbers before he made a move. His division's ROI has led the company for three yoars, and he doesn't want any letdown. Bilti Products is a decentralized wholesaler with fout autonomous divisions. The divisions are evaluated on the basis of Rol, with yearend bonuses given to divisional managers who have the highest ROL. Operating results for the company's East Oivision for last year are given below: The company had an overall ROI of 12% last year (considering all divisions) The new product line that headquarters wants Grenier's East Division to add would require an investment of $4,000,000. The cost and revenue characteristics of the new product line per yoar would be as follows: Required: 1. Compute the East Disision's ROI for lest year; also compute the ROI as it would appear if the new product line wero added. (Do not round intermediate calculations. Round your final answer to the nearest whole number.) 2. If you were in Grenler's position, would you accept or reject the new product line? Accept Reject Reject 3. Why do you suppose headquarters is anxious for the East Division to add the new product line? Adding the new line would decrease the company's overall ROI. Adding the new line would increase the company's overall ROt. 4. Suppose that the company's minimum required rate of return on operating assets is 10 s and that performance is evaluated using residual income. a. Compute East Division's residual income for last year, also compute the residual income as it would appear if the new product line were added. b. Under these circumstances, if you were in Grenier's position, would you accept or reject the new product line? Accept Reject