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The managers of Herwhno want to introduce a new product line. The financial performance of the company for the most recent year is given below:

The managers of Herwhno want to introduce a new product line. The financial performance of the company for the most recent year is given below:

Sales 63,300,000
Less variable costs 36,720,000
Contribution 26,580,000
Less fixed expenses 22,720,000
Net profit 3,860,000
Divisional capital employed 23,200,000

The company estimates that the required return on investment should be a minimum of 12%. Details of new product line The sales manager estimates that sales for the new product will be 420,000 units per annum if the selling price is 5.20 per unit. Variable costs are estimated to be 2.86 per unit. Fixed costs will increase by 900,000. A budget of 2,000,000 has been agreed for investment in new machinery.

A) Calculate the return on investment after the new investment is accepted. (Round your answer to 2 decimal places.)

14.1%.

22.10%.

14.8%.

15.65%.

B) Calculate residual income after the new investment is accepted

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