Problem One RETURN ON INVESTMENT AND INVESTMENT DECISIONS Leslie Blandings, division manager of Audiotech Inc., was debating the merits of a new producta weather radio that would put out a warning if the county in which the listener lived were under a severe thunderstorm or tornado alert. The budgeted income of the division was $725,000 with operating assets of $3,625,000. The proposed investment would add income of $640,000 and would require an additional investment in equipment of $4,000,000. The minimum required return on investment for the company is 12 percent. Round all numbers to two decimal places. Required: 1. Compute the ROI of: a. The division if the radio project is not undertaken. b. The radio project alone. c. The division if the radio project is undertaken. 2. Compute the residual income of: a. The division if the radio project is not undertaken. b. The radio project alone. c. The division if the radio project is undertaken 3. Do you suppose that Leslie will decide to invest in the new radio? Why or why not? Problem Two RETURN ON INVESTMENT AND ECONOMIC VALUE ADDED OBJECTIVE CALCULATIONS WI11-I VARYING ASSUMPTIONS Knitpix Products is a division of Parker Textiles Inc. During the coming year, it expects to earn income Of $310,000 based on sales of $3.45 million; without any new investments, the division will have average operating assets of $3 million. The division is considering a capital investment projectadding knitting machines to produce gaiters that requires an additional investment of $600,000 and increases net income by $57,500 (sales would increase by $5?5,000). If made, the investment would increase beginning operating assets by $600,000 and ending operating assets by $400,000. Assume that the actual cost of capital for the company is 7 percent. Required: 1. Compute the ROI for the division without the investment. 2. Compute the margin and turnover ratios without the investment. Show that the product of the margin and turnover ratios equals the ROI computed in Requirement 1. 3. Compute the ROI for the division with the new investment. Do you think the divisional manager will approve the investment? 4. Compute the margin and turnover ratios for the division with the new investment. Compare these with the old ratios. 5. Compute the EVA of the division with and without the investment. Should the manager decide to make the knitting machine investment? Question Three MANUFACTURING CYCLE EFFICIENCY Kurena Company provided the following information on one of its factories: Maximum units produced in a quarter: 180,000 units Actual units produced in a quarter: 112,500 units Hours of production labour in a quarter: 30,000 hours Theoretical cycle time: 10 minutes per unit Actual cycle time: 16 minutes per unit Required: 1. Calculate the amount of processing time per unit and the amount of time per unit. 2. Calculate the MCE