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Ibrahima Duncan was debating the merits of a new product. Currently, the budgeted operating income...

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Accounting

Ibrahima Duncan was debating the merits of a new product. Currently, the budgeted operating income
of the manufacturing division was $1,450,000 with average capital assets of $7,250,000. The proposed
investment would add income of $1,280,000 and would require an additional investment in equipment
of $8,000,000. The minimum required return on investment (ROI) for the company is 12%. Round all
numbers to two decimal places.
Requirements:
1. Compute the ROI of:
a. The division if the project is not undertaken.
b. The project alone.
c. The division if the project is undertaken.
2. Compute the residual income of:
a. The division if the project is not undertaken.
b. The project alone.
c. The division if the project is undertaken.
3. Do you suppose that Ibrahima will decide to invest in the new project? Why or why not?
4. Should residual income be used to compare projects of different sizes? Why or why not?

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