Q30:

The M Division of ACorporation has a current ROI of 10 percent. The company's target ROI is 6 percent. The M Division has an opportunity to invest $4,800,000 at 8 percent but is reluctant to do so because its ROI will fall to 9.25 percent. The present investment base for the division is $8,000,000.

Required

Calculate the current residual income and the residual income with the new investment opportunity being included.

Based on your answers to requirement a, should M Division make the investment?

\begin{tabular}{|l|l|} \hline a. Current residual income & \\ \hline a. New residual income & \\ \hline b. Should Monarch Division make the investment? & \\ \hline \end{tabular}