Residual income and Investment Deco Alard, Inc., presented two years of data for its Frozen Foods Division and its Canned Foods Furniture Division Year 1 Year 2 Sales $35,600,000 $37,500,000 Operating income 1,380,000 1,560,000 Average operating assets 7,620,000 7,620,000 Canned Division Year 1 Year 2 Sales $11,800,000 $12.900,000 Operating income 630,000 540,000 Average operating assets 5,950,000 5,950,000 At the end of Year 2, the manager of the Canned Division is concerned about the division's performance. As a result, he considering the opportunity to west in twendependent projects. The first is juice boxes for clementary school children. The second is fruit and vege pouches for kids on the go. Without the investments, the division expects that year 2 data will remain unchanged. The expected operating incomes and the outley required for each investment are as follows Juice Box Fruit Pouch Operating income $28.000 $15,400 Outlay 160,000 110,000 Alard's corporate headquarters has made valable up to 5570,000 of capital for the division. Any funds to invested by the dission will be tamed by headquarters and mvested to eam the company's minimum required rate of mtum, 7 percent. 1. Compute the conforach of the contes (Round to the nearest dar) No Box $ 2. Computer med mere tong (Round to the nearest dar) The juice box D these Both sided Assuming the divisional medded on the basco come, which do you think the damage 3. Assuming that mangement recomme compute the change in the digesvestment was the correct decisions made? Residual income and Investment Decisions Allard, Inc., presented two years of data for its Frozen Foods Division and its Canned Foods Don Furniture Division Sales Operating income Average operating assets Year 1 Year 2 $35,600,000 $37.500,000 1,380,000 1,560,000 7,620,000 7,620,000 Canned Division Year 1 Year 2 Sales 511,800,000 $12.900.000 Operating income 630,000 540,000 Average operating assets 5,950,000 5,950,000 At the end of Year 2, the manager of the Canned Division is concerned about the division's performance Ass result, he esconderng the opportunity to invest in two wdependent brojects. The first is juice boxes for elementary school children. The second is fruit and veggie pouches for kids on the oo Without the investments, the division expects that your data will remain unchanged. The expected operating comes and the outlay required for each investment are as follows: Juice Box Fruit Pouch Operating income $28.000 $15,400 Outly 160.000 110,000 Alad's corporate headquarters has made avadable up to $570,000 of capital for this division Any funds not invested by the division will be retned by headquarters and invested to cam the company's minimum required tate of return, 7 percent 1. Compute the residual income for each of the opportunities (Round to the nearest dollar.) Nu Box residual income Fruit Pouch residual income 2. Compute the divisional residual income for each of the following four natives (Round to the nearest dollar) a. The juice box is added b. The fruit pouch is added $ Both investments are added Neither investment is made, the status quos maintained Assuming that divisional managers are evaluated and rewarded on the base of residual income, which alternative to you think the divisional manager will choose? 3. Assuming that management acts as you recommend in requirement2.compute the change in profit Coss) from the divisional manager's investment decision. was the correct de son made
