QUESTION

Haulage Ltd$,$ a transport company, is planning its future investment strategy. Haulage's best

projections of profit outcome are dependent upon the cost of fuel as shown below.

The company's minimum required rate of return is $10\%$ p$.$a$.$

$($a$)$ For each level of investment, compute the return on investment $($ROI$)$ and the

residual income $($RI$).$

$(12$ Marks$)$

$($b$)$ If the company uses ROI as a measure of performance, determine the optimal

level of investment.

$(4$ Marks$)$

$($c$)$ If residual income is used for assessing performance, determine the optimal

investment level.

$(4$ Marks$)$

$($d$)$ State any three $(3)$ advantages for each of using residual income and ROI as

measures of performance.

$(5$ Marks$)$