The Monarch Division of Allgood Corporation has a current ROI of 12

percent. The company target ROI is 8 percent. The Monarch Division

has an opportunity to invest $4,800,000 at 10 percent but is

reluctant to do so because its ROI will fall to 11.25 percent. The

present investment base for the division is $8,000,000.

Required

a.

Calculate the current residual income and the residual income

with the new investment opportunity being included.

b.

Based on your answers to requirement a, should Monarch

Division make the investment?