Thompson Corporation provided the following information for its two divisions, apparel division and watch division for 2018.

Apparel Division Watch Division

Sales $500,000 $700,000

Variable expenses 200,000 275,000

Contribution margin 300,000 425,000

Fixed expenses 150,000 180,000

Net operating income (loss) $150,000 $245,000

Average operating assets $800,000 $1,500,000

(1)Calculate the return on investment for the two divisions.

(2)If the minimum required rate of return is 10%, what is the residual income for the two divisions?

(3)The manager of the apparel division has an opportunity to make an investment of $100,000 that will generate additional net operating income of $16,000. Will the manager invest in the new project if he is evaluated based on return on investment? Will the manager invest in the new project if he is evaluated based on residual income?