Question:
Leslie Blandings, division manager of Audiotech, Inc. was debating the merits of a new product - a weather radio that would put out a warning in the country in which the listener lived were under a severe thunderstorm or tornado alert. The budgeted income of the division was $725,000 with operating assets of $3,625,000. The proposed investment would add income of $640,000 and would require an additional investment in equipment of $4,000,000. The minimum required return on investment for the company is 12 percent. Round all numbers to two decimal places.
Required:
1. Compute the ROI of the: a) division if the radio project is not undertaken b) radio project alone c) division if the radio project is undertaken
2. Compute the residual income of the: a) division if the radio project is not undertaken b) radio project alone c) division if the radio project is undertaken
3. Conceptual Connection: Do you suppose that Leslie will decide to invest in the new radio? Why or Why not?