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Johinson Ceramica, a dvision of Sweeney Corporation, has an operating incomo of $64,000 and lotal assets of $400,000. The required rate of retum for the company is 13%. The company is evaluating whether it should use retum on investrment (RO) or residual income (Ri) as a measurement of performance for its division managers. The manager of Johnson Ceramics has the oppontunity to undereike a new project that will require an investment of $100,000. This investment would earn $14,000 for the compary. Read the reauirements. Requirement 1. What is the orighal retum on imvestment (ROD) for Johnson Ceramics (belore making any addibonal investrment)? Finst determine the formula to caloulate the ROF. 1. What is the original return on investment (ROI) for Johnson Ceramics (before making any additional investment)? 2. What would the ROI be for Johnson Ceramics if this investment opportunity were undertaken? Would the manager of the Johnson Ceramics division want to make this investment if she were evaluated based on ROI? Why or why not? 3. What is the ROI of the investment opportunity? Would the investment be desirable from the standpoint of Sweeney Corporation? Why or why not? 4. What would the residual income (RI) be for Johnson Ceramics if this investment opportunity were to be undertaken? Would the manager of the Johnson Ceramics division want to make this investment if she were evaluated based on RI? Why or why not? 5. What is the RI of the investment oppoltunity? Would the investment be desirable from the standpoint of Sweeney Corporation? Why or why not? 6. Which performance measurement method, ROI or RI, promotes goal congruence? Why

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