Cornerstones of Managerial Accounting 4th Edition by Maryanne Mowen, Don Hansen, Dan Heitger

Exercise 52

Return on Investment and Investment Decisions
Leslie Blandings, division manager of Audiotech Inc., was debating the merits of a new product-a weather radio that would put out a warning if the county in which the listener lived were under a severe thunderstorm or tornado alert.
The budgeted income of the division was $725,000 with operating assets of $3,625,000. The proposed investment would add income of $640,000 and would require an additional investment in equipment of $4,000,000. The minimum required return on investment for the company is 12%. Round all numbers to two decimal places.
Required:
1. Compute the ROI of the:
a. division if the radio project is not undertaken.
b. radio project alone.
c. division if the radio project is undertaken.
2. Compute the residual income of the:
a. division if the radio project is not undertaken.
b. radio project alone.
c. division if the radio project is undertaken.
3. CONCEPTUAL CONNECTION Do you suppose that Leslie will decide to invest in the new radio Why or why not