You are a senior manager at the Hunt Corporation. You need to decide whether to invest in a new product line. The minimum required rate of return is $6\%.$

The current year financial statements show the following results:

Sales

$$12,850,000$

Variable expenses

$8,200,000$

Fixed expenses

$3,405,000$

Operating assets, beginning of year

$$25,000,000$

Operating assets, end of year

$$30,000,000$

The new product line will require an investment of $$2,400,000$ and the expected operating results is as follows:

Sale

$$1,400,000$

Variable expenses

$62\%$ of sales

Fixed expenses

Calculate the current return on investment $($ROI$).$

Calculate the ROI if the new product line is added.

Provide a supported conclusion on whether you would proceed with the new product line based on your ROI calculations

Calculate the residual income $($RI$)$ for the current year.

Calculate the residual income if the new product line is added.

Provide a supported conclusion on whether you would proceed with the new product line based on your RI calculations.

Explain some of the potential problems which are common to using both ROI and RI$.$