Comparing return on investment and residual income Zimmerman Corporation operates three investment centers. The following financial statements apply to the investment center named Meier Division.

Required
a. Should operating income or net income be used to determine the rate of return (ROI) for the Meier investment center? Explain your answer.
b. Should operating assets or total assets be used to determine the ROI for the Meier investment center? Explain your answer.
c. Calculate the ROI for Meier.
d. Zimmerman has a desired ROI of 8 percent. Headquarters has $300,000 of funds to assign to its investment centers. The manager of the Meier Division has an opportunity to invest the funds at an ROI of 10 percent. The other two divisions have investment opportunities that yield only 9 percent. Even so, the manager of Meier rejects the additional funding. Explain why the manager of Meier would reject the funds under these circumstances.
e. Explain how residual income could be used to encourage the manager to accept the additional funds.

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MEIER DIVISION Income Statement For the Year Ended December 31, 2011 Sales revenue Cost of goods sold Gross margin Operating expenses Selling expenses Administrative expense $250,975 (128,635) 122,340 (13,200) (2,400) 106,740 Operating income Nonoperating expense Interest expense (6,800) $ 99,940 Net income MEIER DIVISION Balance Sheet As of December 31, 2011 Assets $ 68,360 380,290 53,750 428,600 48,000 Cash Accounts receivable Merchandise inventory Equipment less accum. dep. Nonoperating assets Total assets $979,000 Liabilities Accounts payable Notes payable Stockholders' equity Common stock Retained earnings Total liab, and stk. equity $115,000 100,000 520,000 244,000 $979,000