Everett Dockside Company had net operating income of $1,555,000 and average operating assets of $5,000,000. The company requires a return on investment of 19%.
Required:
a. Calculate the company's current return on investment and residual income.
b. The company is investigating an investment of $4,000,000 in project that will generate annual net operating income of $782,000. What is the return on investment of the project? What is the residual income of the project? Should the company invest in this project?