Selected sales and operating data for three divisions of a company are provided below:

Red Division

Blue Division

Green Division

Sales

$6,000,000

$10,000,000

$8,000,000

Average Operating Assets

$1,500,000

$5,000,000

$2,000,000

Net Operating Income

$300,000

$900,000

$180,000

Minimum Required Rate of Return

15%

18%

12%

1 )What is the ROI of each division?

2) What is the residual income for each division?

3) Assume that each division is presented with an investment opportunity that would yield a rate of return of 17%.

a.If performance is being measured by ROI, which division or divisions will probably accept the opportunity? Reject? Why?

b.If performance is being measured by residual income, which division or divisions will probably accept the opportunity? Reject? Why?