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Vernon Corporation operates three investment centers. The following financial statements apply to the investment center named Bowman Division.

BOWMAN DIVISION
Income Statement
For the Year Ended December 31, Year 2
Sales revenue	$	105,680
Cost of goods sold		60,075
Gross margin		45,605
Operating expenses
Selling expenses		(2,790	)
Depreciation expense		(4,055	)
Operating income		38,760
Nonoperating item
Loss on sale of land		(4,800	)
Net income	$	33,960

BOWMAN DIVISION
Balance Sheet
As of December 31, Year 2
Assets
Cash	$	12,562
Accounts receivable		40,346
Merchandise inventory		37,500
Equipment less accumulated depreciation		90,448
Nonoperating assets		9,400
Total assets	$	190,256
Liabilities
Accounts payable	$	9,477
Notes payable		72,000
Stockholders equity
Common stock		71,000
Retained earnings		37,779
Total liabilities and stockholder's equity	$	190,256

Required

3. Calculate the ROI for Bowman.

4. Vernon has a desired ROI of 14 percent. Headquarters has $86,000 of funds to assign to its investment centers. The manager of the Bowman Division has an opportunity to invest the funds at an ROI of 16 percent. The other two divisions have investment opportunities that yield only 15 percent. Calculate the new ROI for Bowman division, if the investment opportunity is adopted by Bowman.

5. Based on the original data, calculate the original residual income. Also, calculate the new residual income based on information provided in Requirement d.

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