Vernon Corporation operates three investment centers. The following financial statements apply to the investment center named Bowman Division. BOWMAN DIVISION Income Statement For the Year Ended December 31, Year 2 Sales revenue $ 105,580 Cost of goods sold 58,675 Gross margin 46,905 Operating expenses Selling expenses (2,650 ) Depreciation expense (4,055 ) Operating income 40,200 Nonoperating item Loss on sale of land (4,400 ) Net income $ 35,800 BOWMAN DIVISION Balance Sheet As of December 31, Year 2 Assets Cash $ 12,622 Accounts receivable 40,266 Merchandise inventory 37,200 Equipment less accumulated depreciation 90,318 Nonoperating assets 10,300 Total assets $ 190,706 Liabilities Accounts payable $ 9,507 Notes payable 66,000 Stockholders equity Common stock 77,000 Retained earnings 38,199 Total liabilities and stockholder's equity $ 190,706

Required

c. Calculate the ROI for Bowman.

d. Vernon has a desired ROI of 11 percent. Headquarters has $87,000 of funds to assign to its investment centers. The manager of the Bowman Division has an opportunity to invest the funds at an ROI of 13 percent. The other two divisions have investment opportunities that yield only 12 percent. Calculate the new ROI for Bowman division, if the investment opportunity is adopted by Bowman.

e. Based on the original data, calculate the original residual income. Also, calculate the new residual income based on information provided in Requirement d.