Q5 part 1 of 12

Preston Ceramics, a division of Samson Corporation, has an operating income of $81,000 and total assets of $450,000. The required rate of retum for the company is 14%. The conpany is evaluating whether it should use retum on irvestment (ROl) or residual income (RI) as a measuremont of performance for its division managers. The managor of Preston Coramics has the opportunity to undertake a new project that will require an investment of $150,000. This investment would eam $22,500 for the company: Read the meguirments. Requirement 1. What is the original retum on investment (ROD) for Preston Ceramics (before making any additonal investment)? First determine the formula to calculate the ROI. Requirements 1. What is the onginal retum on invesiment (ROI) for Preston Ceramics (belore making any additional investmenty? 2. What would the ROI be for Preston Ceramics if this investment opportunity were undertaken? Would the manager of the Preston Ceramics division wam to make this invesiment if she were evilualed based on ROl? Why of why not? 3. What is the ROl of the investment opportunity? Would the investment be desirable from the standpoint of Samson Corporation? Winy or why not? 4. What would the residual income (Ri) be for Preston Ceramics if this investment opportunily wore to be undertaken? Would the manager of the Preston Ceramics division want to make this inventment if she were evaluatod based on Ra? Why or why not? 5. What is the Ri of the investment opportunity? Would the imvesiment be deairable trom the standpoint of Samson Corporation? Why of why not? 6. Which performance measurement mothod, ROI or Ai, promotes goal congrvence? Whiy