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The Yoshi Division of King Boo Company manufactures minibikes used in the Mariokart Leaf Cup. At a normal volume of 300,000 bikes per year, costs
The Yoshi Division of King Boo Company manufactures minibikes used in the Mariokart Leaf Cup. At a normal volume of 300,000 bikes per year, costs are as follows: The Yoshi Division has operating assets of $30 million, and has been selling 300,000 bikes per year to outside buyers at $40.00 each. The company's required rate of return is 18%. 1. Compute the current ROI and residual income of the Yoshi Division. 2. A customer from an untapped foreign market has offered to make a one-time purchase of 10,000 bikes from the Yoshi Division for $24.00 per unit. Shipping will cost $1.80 per unit, but no other selling costs will be incurred on this order. The Yoshi Division has spare capacity, so current sales will not be affected. However, accepting the order will require the Yoshi Division to invest $600,000 in additional operating assets (such as inventories and receivables). If the manager of the Yoshi Division receives a bonus based on ROI, do you think that he will accept the offer? 3. If the manager receives a bonus based on residual income instead of ROI, would your answer to requirement (b) change? Support your
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