Required

1. a-1. Calculate the existing ROI for Magnificent.

2. a-2. Based on your computations will the President of Magnificent accept or reject the $100,000 investment opportunity?

3. c-1. Calculate the estimated residual income of the new investment opportunity.

4. c-2. Based on the residual income would the President of Magnificent accept or reject the $100,000 investment opportunity?

Assume Magnificent Modems, Inc., is a division of Gilmore Business Products (GBP). GBP uses ROI as the primary measure of managerial performance. GBP has a desired return on investment (ROI) of 3 percent. The company has $100,000 of investment funds to be assigned to its divisions. The president of Magnificent is aware of an investment opportunity for these funds that is expected to yield an ROI of 3.5 percent. Income Statement Sales revenue Cost of goods sold Gross margin Sales commission Depreciation expense Administrative expense Net income $ 600,000 (455,000) $ 145,000 (30,000) (12,000) (71,950) $ 31,050 Balance Sheet Assets: Cash Manufacturing equipment, net of accumulated depreciation Office equipment, net of accumulated depreciation Total assets Equity: Common stock Retained earnings Total equity $544,050 210,000 27,000 $781,050 $750,000 31,050 $781,050