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Residual Income and investment Deciglons Aliard, 1nci, presented two years of data for its Frozen Foods Dlvislon and ies Canned Foods DWision. Froxen Foods Division:
Residual Income and investment Deciglons Aliard, 1nci, presented two years of data for its Frozen Foods Dlvislon and ies Canned Foods DWision. Froxen Foods Division: Canned Foods Division: At the end of Year 2, the manager of the Canned Foods Division is concerned about the divisan's performance. As a result, be is contidering the opportunity to invert in two independent projects. The first a juice boxes for dementery school chidren. The second is fruit and vegole pouches for kds on the go. Without the investments, the division expects that Year 2 data will remain unchanged. The expected eperating incomes and the outay required for each imvestment are as follows Aiord's comporate headquarters has made available up to $100,000 of capital for this division. Any funds not imested by the division will be retained by hepdojarters ahd invested to eam the company's minimum required rate of return, 9 percent. Required: 1. Compute the residual income foc each of the opporturities. (Round to the nearest dollar.) 2. Compute the divisional residual income for each of the following four aitematives: (Round to the nearest dollar.) A. The juice box is added. . b. The fruit pouch is added: s. c. Both investrents are added. 1 4. Neither investment is made; the status quo is maintained. Ascuming that divisional managers?re evaliated and rewarded on the basis of residual income, which alternative do you think the divisional manager will choose? 3. Assuming that management acts as vou recommend in requirement-2, compute the change in profit (loss) from the divisional manager's investment decision. 5. Was the correct dechsion made
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