ROI and Investment Decisions

Allard, Inc., presented two years of data for its Frozen Foods Division and its Canned Foods Division.

Frozen Foods Division:

Year $1$ Year $2$

Sales $$35,200,000$ $$38,400,000$

Operating income $1,390,0001,500,000$

Average operating assets $6,600,0006,600,000$

Canned Foods Division:

Year $1$ Year $2$

Sales $$11,900,000$ $$12,700,000$

Operating income $620,000530,000$

Average operating assets $5,900,0005,900,000$

At the end of Year $2,$ the manager of the Canned Foods Division is concerned about the division's performance. As a result, he is considering the opportunity to invest in two independent projects. The first is juice boxes for elementary school children. The second is fruit and veggie 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 outlay required for each investment are as follows:

Juice Box Fruit Pouch

Operating income $$28,000$ $$15,500$

Outlay $210,000160,000$

Allard's corporate headquarters has made available up to $$510,000$ of capital for this division. Any funds not invested by the division will be retained by headquarters and invested to earn the company's minimum required rate of return, $8$ percent. Required:

Round your answers to four decimal places before converting to a percentage. For example, $\mathrm{.}06349$ would be rounded to $.0635$ and entered as $"6\mathrm{.}35"$

percent.

Compute the ROI for each investment.

Juice Box ROI

Fruit Pouch ROI

Compute the divisional ROI for each of the following four alternatives:

a$.$ The juice box is added.

$x\%$

b$.$ The fruit pouch is added.

$\%$

c$.$ 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 ROI performance, which alternative do you think the divisional manager will choose?

Which of the data analytic types$-$descriptive, diagnostic, predictive or prescriptive$-$is used in determining which, if any, new investment to make?