Julia's firm relies heavily on year-over-year improvements in ROI to evaluate managerial performance. Julia projects ROI of 30% this year, comfortably above last year's actual ROI of 26%. She has the opportunity to make an investment that exceeds the firm's criteria for payback and NPV. This project will increase her average assets for this year by $50,000 to $350,000. This investment will, however, only contribute $8,000 to this year's profit.

Required:

a. Calculate Julia's projected ROI if she invests in the project.

b. Suppose the firm's required rate of return (cost of capital) is 15%. Calculate the change in Residual Income.

c. Will Julia invest in the project? Will your answer change if the firm were using RI instead of ROI as the basis for performance evaluation?