Problem 9-21A (Algo) Comparing return on investment and residual income LO 9-2, 9-3

Rundle Corporation operates three investment centers. The following financial statements apply to the investment center named Bowman Division.

BOWMAN DIVISION
Income Statement
For the Year Ended December 31, Year 2
Sales revenue	$	106,280
Cost of goods sold		58,875
Gross margin		47,405
Operating expenses
Selling expenses		(2,730	)
Depreciation expense		(4,085	)
Operating income		40,590
Nonoperating item
Loss on sale of land		(4,800	)
Net income	$	35,790

BOWMAN DIVISION
Balance Sheet
As of December 31, Year 2
Assets
Cash	$	12,522
Accounts receivable		40,296
Merchandise inventory		36,600
Equipment less accumulated depreciation		90,318
Nonoperating assets		10,300
Total assets	$	190,036
Liabilities
Accounts payable	$	9,487
Notes payable		72,000
Stockholders equity
Common stock		72,000
Retained earnings		36,549
Total liabilities and stockholder's equity	$	190,036

Required

3. Calculate the ROI for Bowman.

4. Rundle has a desired ROI of 14 percent. Headquarters has $95,000 of funds to assign to its investment centers. The manager of the Bowman Division has an opportunity to invest the funds at an ROI of 16 percent. The other two divisions have investment opportunities that yield only 15 percent. Calculate the new ROI for Bowman division, if the investment opportunity is adopted by Bowman.

5. Based on the original data, calculate the original residual income. Also, calculate the new residual income based on information provided in Requirement d.

need parts c,d,and e