The Monarch Division of Allgood Corporation has a current ROI of 10 percent. The company target ROI is 6 percent. The Monarch Division has an opportunity to invest $4,800,000 at 8 percent but is reluctant to do so because its ROI will fall to 9.25 percent. The present investment base for the division is $8,000,000.

Required

1. Calculate the current residual income and the residual income with the new investment opportunity being included.

2. Based on your answers to requirement a, should Monarch Division make the investment?

a. Current residual income New residual income b. Should Monarch Division make the investment