Question 1 Blooming Dale Co. has two divisions, Rose division (RD) and Carnation division (CD) each with its own cost and revenue streams. Each of these divisions is managed by a divisional manager who has the autonomy to make all investment decisions within their own division. The cost of capital for both divisions is 10%. Historically, investment decisions have been made by calculating the return on investment (ROI) of any new opportunities and at present, the ROI of each division is 15%. A new manager who has recently been appointed in division CD has argued that using residual income (RI) to make investment decisions would result in 'better goal congruence' throughout the company. Each divisional manager is considering the following separate investment proposals: Capital outlay Sales revenue Profit Mark-up RD $4,000,000 $3,500,000 25% CD $3,000,000 $1,560,000 30% The company is seeking to maximize shareholders' wealth. Required: a) Calculate the return on investment (ROI) and residual income (RI) of the new investment for each of the two divisions separately as stated above. (10 marks) b) Evaluate and comment on the results calculated in part (a) above, taking into consideration the new manager's view about residual income. (7 marks) c) Discuss FOUR (4) advantages of using return on investment (ROI) as a performance measure in a divisionalized structure. (8 marks) (Total: 25 marks)