Transcribed image text: SBUS Limited is a reputable manufacturing company in Hong Kong. The following is the draft financial data for ACY Limited, one of SBUS Limited's subsidiaries, for Year 2020: SBUS Limited Statement of Financial Position As at 31 December 2020 Beginning Balance Ending Balance Assets Cash $440,000 $400,000 Accounts receivable 660,000 900.000 Inventory 580,000 660,000 Plant and equipment, net 1,420,000 1,340,000 Investment in PTS Limited 900,000 960,000 Land 2,000,000 2.000.000 Total assets 56.000.000 $6.260.000 Liabilities and Stockholders' Equity Accounts payable $860,000 $900,000 Long-term debt 4,800,000 4.800,000 Stockholders' equity 340.000 560,000 Total liabilities and stockholders' equity $6.000.000 $6.260.000 SBUS Limited Statement of Profit or Loss For the year ended 31 December 2020 Sales $12,900,000 Operating expenses 12.260.000 Net operating income S640,000 Interest and taxes: Interest expense 240,000 Tax expense 60,000 300.000 Net income S340.000 Fanny Mok, the Chief Financial Officer of SBUS Limited, explained to Larry Leung, the Chief Executive Officer of SBUS Limited that, for the assets of ACY Limited, straight line depreciation is used for plant and equipment. ACY Limited holds the shares of PTS Limited for investment purpose and the land for future use. ACY Limited paid dividends of $120,000 in 2020. The management of ACY Limited is evaluated on the basis of return on investment (ROI), with the higher the ROI, the higher the amount of the year-end bonuses awarded. ACY Limited has a project to expand its product line in Shenzhen that would require an additional investment in operating assets of $2,000,000. The new project would bring additional sales of $6,000,000. Costs for this new project include variable expenses of 71% of sales and fixed expenses of $1,440,000. Fanny introduces to Larry the use of residual income for performance evaluation. Fanny also suggests to Larry that he may consider to use balanced Scorecard to evaluate the employees of SBUS Limited and other subsidiaries including ACY Limited, instead of relying solely on ROL Different measures can be developed and used for different companies. Required: (where appropriate, round answers to two decimal places) (a) Determine last year's ROI for ACY Limited. Determine also the ROI of ACY Limited as it would appear if the new product line is added. (9 marks) (6) Assume that the minimum required rate of return is 12%. Determine ACY Limited's residual income for last year. Determine also the residual income of ACY Limited as it would appear if the new product line is added. (6 marks) (c) Based on the computation of items (a) and (b) above, critically analyse and explain to Larry why he may use residual income approach instead of using solely ROI for performance measurement