ROI and Residual Income (10 points)

The following investment opportunities are available to an investment center manager:

Project Initial Investment Annual Earnings

A $600,000 $80,000

B 200,000 20,000

C 300,000 20,000

D 400,000 60,000

1. If the investment manager is currently making a return on investment of 16 percent, which project(s) would the manager want to pursue using ROI as the benchmark?
2. If the investment manager is currently making a return on investment of 10 percent, which project(s) would the manager want to pursue using ROI as the benchmark?

c. Suppose only one project can be chosen. Which project should be chosen if the benchmark criteria is changed so that residual income is the only criteria used (using a benchmark of 10 percent)?