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Return on Investment and Investment Decisions Leslie Blandings, division manager of Audiotech Inc., was debating the merits of a new producta weather radio that would

Return on Investment and Investment Decisions

Leslie Blandings, division manager of Audiotech Inc., was debating the merits of a new producta weather radio that would put out a warning if the county in which the listener lived were under a severe thunderstorm or tornado alert.

The budgeted income of the division was $775,000 with operating assets of $3,625,000. The proposed investment would add income of $640,000 and would require an additional investment in equipment of $4,000,000. The minimum required return on investment for the company is 13%.

Required:

1. Compute the ROI of the following (round to the nearest whole percent):

a. The division if the radio project is not undertaken. %
b. The radio project alone. %
c. The division if the radio project is undertaken. %

2. Compute the residual income of the following:

a. The division if the radio project is not undertaken. $
b. The radio project alone. $
c. The division if the radio project is undertaken. $

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