The manager of the snack division of Fairfax Industries is evaluated on her divisions return on investment and residual income. The company requires that all divisions generate a minimum return on invested assets of 8 percent. Consistent failure to achieve this minimum target is grounds for the dismissal of a division manager. The annual cash bonus paid to division managers is 1 percent of residual income in excess of $100,000. The snack divisions operating margin for the year was $8.843 million, during which time its average invested capital was $62.435 million.

Required:

a. Compute the Snack Division's return on investment and residual income.

b. Will the manager of the Snack Division receive a bonus for her performance? If so, how much will it be?

c. In reporting her investment centers performance for the past 10 years, the manager of the snack division accounted for the depreciation of her divisions assets by using an accelerated depreciation method allowed for tax purposes. As a result, virtually all of the assets under her control are fully depreciated. Given that the companys other division managers use straight-line depreciation, is her use of an accelerated method ethical?