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

Required
a. Should operating income or net income be used to determine the rate of return (ROI) for the Owen investment center? Explain your answer.
b. Should operating assets or total assets be used to determine the ROI for the Owen investment center? Explain your answer.
c. Calculate the ROI for Owen.
d. Angelo has a desired ROI of 10 percent. Headquarters has $91,000 of funds to assign its investment centers. The manager of the Owen division has an opportunity to invest the funds at an ROI of 13 percent. The other two divisions have investment opportunities that yield only 12 percent. Even so, the manager of Owen rejects the additional funding. Explain why the manager of Owen would reject the funds under these circumstances.
e. Explain how residual income could be used to encourage the manager to accept the additionalfunds.

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OWEN DIVISION Income Statement For the Year Ended December 31, 2008 Sales revenue Cost of goods sold Gross margin Operating expenses $113,385 160,420) 52,965 Selling expenses Depreciation expense (1,345 52,320 Operating income Nonoperating income 4,460 $ 54,780 Gain on sale of land Net income OWEN DIVISION Balance Sheet As of December 31, 2008 Assets Cash Accounts receivable Merchandise inventory Equipment less accum. dep. Non-operating assets S 18,303 37,032 37,455 90,000 10,000 $192,790 Total assets Liabilities Accounts payable Notes payable S 6,700 67,310 Stockholders' equity Common stock Retained earnings 64,000 54,780 S192,790 Total liab. and stk. equity