Three divisions of Donald Duck Gyms report the following sales and operating data:

Huey Dewey Louie

Sales $1,200,000 $1,500,000 $800,000

Operating Income $60,000 $75,000 $48,000

Average operating assets $400,000 $500,000 $200,000

Minimum required rate of return 12% 13.5% 13%

Required:

1. Compute the Return on Investment for each division.

2. Compute the residual income for each division.

3. Each division is presented with an opportunity to invest in a project that would yield a return on investment of 15.5%. Evaluate it by each division from both return on investment and residual income separately and determine if the manager of each division will accept it or reject it and why?