Residual income and Investment Decisions Aland, Inc, presented two years of data for its roren Foods Division and its Canned Foods Division Frozen Foods Division Year 1 Year 2 $35,000,000 $3,500,000 Operating income 1,430,000 1.520,000 Average rating assets 2.220,000 2,220,000 Canned Division Year 1 Year 2 Sales $11.900,000 $12,500,000 Operating income 600,000 550.000 Average operating 5,600,000 5,600,000 At the end of year, the manager of the Canned on a concerned about the division's performance. As a result, he is consider opportunity to West in two independent process. The fost juce bouts for ementary school children. The second strut and veggie pouches for kids on the g without the westments, the division pects that year 2 data will remain unced. The expected operating incomes and the outlay required for each investment are as follow Juice Box Fruit Pouch Operating income $28.000 $15,000 Outlay 150,000 110,000 Aires corporate bedeuters has made available up to $570,000 of capital for this division. Any funds not invested by the division de retained by headecanters and sted to carn the company's on required rate of return, 7 percent Required: 1. Compute the residual income for each of the opportunities (Round to the nearest doltar.) Juice Box residual income Fruit Pouch residual income 2. Compute the divisional residual income for each of the following four alternatives (Round to the nearest dollar) a. The juice box is added D. The fruit pouch is added Both investments are added d. Neither investment is made, the status quo is maintained Assuming that divisional managers are evaluated and rewarded on the basis of residual income, which alternative do you think the division manager will choose! Both projects 3. Assuming that management acts as you recommend in requirement 2, compute the change in profie (less) from the divisional manager's investment decision Profit 5 Was the correct decision made Yes