QUESTION 2 (25 MARKS) Arena Jaya Bhd has three investment divisions namely division Alpha, Beta and Gamma. Selected operating data of the three divisions are given as follows: Divisional operating assets Net operating income Required rate of return Alpha RM3 million RM0.6 million 14 percent Beta RM7 million RM 0.56 million 10 percent Gamma RM5 million RM0.8 million 16 percent Required: a. Calculate the followings for each division: i. Return on investment ii. Residual income (6 marks) b. Determine the most performing division based on your calculation in (a) above. Justify you answer. (3 marks) c. Assume the rate of return of each division is 15% and each division has the opportunity to add a new product line that would require an additional investment in operating assets of RM1 million. The new product line would expect to contribute a net operating income of RM160,000 per year. Explain which divisions are most likely to accept or reject the opportunity if: i. divisional performance being measured by return on investment divisional performance being measured by residual income. ii. (10 marks) d. Describe how the use of return on investment as a performance measure for investment centres might lead to poor decisions. How does the residual income approach address this issue? (6 marks)