Sam's Corporation has a division operating in Macau, and Sam sets the target rate of return of25% for 2020.In the year of 2020, Macau Division generated $30,000,000 of revenue on average assets of$ I 8,000,000.The division's variable costs were 60% of sales revenue and the fixed expenses were $4,500,000.In the year of202 I, Sam expects an increase in sales of I 5% and an increase of$ I ,000,000 in rent expense due to the renewal of shop's rental contract for the next five years. The average assets would have 12% increases on every I 5% increase in sales. Sam is thinking to motivate the management of Macau Division, Sam is considering two bonus plans: Plan A is based on ROI (return on investment) with the fo1mula of: (ROI- Target Rate) X $ I ,000,000; Plan Bis based on RI (residue income) with formula of RIX 0.05.

Instructions:

a.Compute the return on investment of 2020, and 2021. (8 marks)

b.Compute the residue income of 2020, and 2021 (8 marks)

c.Compute the bonus of both bonus plans (A&B) in 2020 and 2021. (6 marks)

d.Which plan (Plan A or Plan B) do you suggest to managers? (3 marks)