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Wealthy Corporation has two major divisions. Summary financial data (in millions) is as follows:

	Operating Income	Revenues	Total Assets
	2021	2022	2021	2022	2020	2021	2022
Division A	$4,500	$4,800	$20,500	$28,000	$16,500	$22,000	$28,500
Division B	1250	1800	24,000	21,500	8,500	10,200	9,400

The two division managers' annual bonuses are based on division ROI. If a division reports an increase in ROI from the previous year, its management is automatically eligible for a bonus; however, the management of a division reporting a decline in ROI has to present an explanation to the board and is unlikely to get any bonus.

Connie, Manager of Division B is considering a proposal to invest $3,200 million in a new computerized system. It is estimated that the new system will increase division operating income by $400 million. Wealthy Corporation uses a 8% required rate of return on investment for each division.

Required

1. Use the DuPont method of profitability analysis to explain differences in 2022 ROIs between the two divisions.
2. Why might Connie be less than enthusiastic about accepting the investment proposal for the new system, despite her belief in the beliefs of the new technology? Use numbers to support your explanation.
3. Calculate the residual income of each division for 2022.
4. Would adoption of residual income measure reduce Connie's reluctance to adopt the new computerized system investment proposal? Use numbers to support your explanation.
5. It is now 2025, the investment in the computerized system was made for $3,200 million and Connie is planning on selling the computerized system. Due to demand the system is likely to sell for $5,000 million. Connie feels that her ROI from selling the computerized system will definitively enable her to earn a bonus this year given that she is selling the computerized system for more than it originally cost. Explain to Connie, what impact would be on the components of the ROI formula of the sale.

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