Required information Problem 13-40 ROI and Residual Income; Investment Evaluation (LO 13-2, 13-3, 13-4, 13-8) [The following information applies to the questions displayed below.) Megatronics Corporation, a massive retailer of electronic products, is organized in four separate divisions. The four divisional managers are evaluated at year-end, and bonuses are awarded based on ROI. Last year, the company as a whole produced a 15 percent return on its investment. During the past week, management of the company's Western Division was approached about the possibility of buying a competitor that had decided to redirect its retail activities. (If the competitor is acquired, it will be acquired at its book value.) The data that follow relate to recent performance of the Western Division and the competitor: Western Division Competitor Sales $4,320,000 $2,720,000 Variable costs 75 % of sales sales Fixed costs $ 883,000 $ 744,000 Invested capital $ 985,000 $ 300,000 70% of Management has determined that in order to upgrade the competitor to Megatronics' standards, an additional $180,000 of invested capitol would be needed. Problem 13-40 Part 5 5-a. Assume that Megatronics uses residual income to evaluate performance and desires a 12 percent minimum return on invested capital. Compute the current residual income of the Western Division and the division's residual income if the competitor is acquired. Current residual income Residual income if competitor is acquired 5.b. If divisional management is being evaluated on the basis of residual income, will the Western Division likely pursue acquisition of the competitor? Yes ONo Exercise 13-25 Improving ROI (LO 13-3) The following data pertain to Pensacola Division's most recent year of operations. Income Sales revenue Average invested capital $ 10,040,000 125,500,000 62,750,000 Required: Which of the following ways could improve the Pensacola Division's ROI to approximately 22 percent? (Select all that apply.) Improve the sales margin to 9 percent by increasing income to $11,295,000. Improve the sales margin to 11 percent by increasing income to $11,409,091 Improve the turnover to 3.2 by decreasing average invested capital to $39,218,750. Improve the turnover to 2.75 by decreasing average invested capital to $45,636,364. UL