The manager of the manufacturing division of Minolta Company is evaluated on a ROI and Residual residual income basis. He is in the process of evaluating three investment proposals. Income

\begin{tabular}{|c|c|c|c|c|}

\hline & \begin{tabular}{c}

Division \\

$W$

\end{tabular} & \begin{tabular}{c}

Division \\

$x$

\end{tabular} & \begin{tabular}{c}

Division \\

$Y$

\end{tabular} & \begin{tabular}{c}

Division \\

$z$

\end{tabular} \\

\hline . . . . . . . . . . . . . . & $\$ 100,000$ & $\$ 300,000$ & $\$(i)$ & $\$ 850,000$ \\

\hline Net income . . . . . . . . . . . . . . . . . . . & $S$

(a) & $\$ 90,000$ & $\$(j)$ & $S(m)$ \\

\hline Total assets. . . . . . . . . . . . . . . . . . . & $\$ 85,000$ & $\$(e)$ & $\$ 550,000$ & $S(n)$ \\

\hline Operating performance ratio . . . . . . . & $15 \%$ &

(f) & $6 \%$ & (0) \\

\hline Asset turnover ratio. . . . . . . . . . . . . . &

(b) & 0.75 times & (k) & 4.0 times \\

\hline ROI &

(c) & (g) & (1) & $21 \%$ \\

\hline Minimum accepted rate of return . . . & $13 \%$ & (h) & $15 \%$ & $12 \%$ \\

\hline Residual income . . . . . . . . . . . . . . . . . & $\$(d)$ & \$ 12,000 & $\$ 17,500$ & $\$(p)$ \\

\hline

\end{tabular}

Compute the missing data, labeled

(a) through (p)

The gaming division of Nevada Corporation had income of $\$ 550,000$ and total assets of $\$ 3,000,000$ in 2000 . The figures are expected to be similar in 2001 . The manager of the gaming division has an opportunity to purchase some new gambling machines for $\$ 250,000$. He concludes that the new machines would increase annual net income by $\$ 44,000$

a. Pay $\$ 500,000$ for a new machine that will increase production substantially. This will result in an increased income of $\$ 80,000$ annually.

b. Pay $\$ 350,000$ for a new machine that will reduce labor costs by $\$ 70,000$ annually.

c. Pay $\$ 800,000$ for a new machine that will increase annual net income by $\$ 115,000$.

The manufacturing division currently has total assets of $\$ 1,200,000$ and net income of $\$ 200,000$. Its minimum accepted rate of return is 15 percent.

Required:

1. Evaluate the three investment proposals independently, and determine which should be accepted.

2. Assuming that the division manager is evaluated on the basis of the division's ROI, determine whether each of the proposals should be accepted or rejected.