Lawton Homes, founded by a former vice-president of Haniwall Industries in P11-45A, has been manufacturing prefabricated houses for the past five years. To compete with Haniwall, Lawton also expanded into the precut housing market by acquiring one of its suppliers, Presser Company. After designating Presser as an investment centre, Lawton next decided to use the ROI as a performance measure and to give managers bonuses that are partly based on the ROI. Lawton defines investments as average productive assets and expects a minimum return of 15% before income taxes. Presser's ROI has averaged 19.5% since it was acquired.
In 2016, Presser found an investment opportunity that would have an estimated ROI of 18%. After analyzing the opportunity, Presser's management finally decided not to make the investment because management did not want the division's overall ROI to decrease.
The 2016 income statement for Presser follows. The division had operating assets of $25.2 million at the end of 2016, which was a 5% increase over the 2016 year-end balance.

Instructions
(a) Calculate the following performance measures for 2016 for the Presser division: (1) the return on investment, and (2) the residual income.
(b) Would the management of Presser division have been more likely to accept the investment opportunity it had in 2016 if the company had used residual income as a performance measure instead of the ROI? Explain your answer.
(c) The Presser division is a separate investment centre within Lawton Homes. Identify several items that Presser should control so that it can be evaluated fairly by either the ROI or residual income performance measures.

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PRESSER DIVISION Income Statement Year Ended June 30, 2016 (in thousands) Sales revenue Cost of goods sold Gross margin Operating expenses $48,000 31,600 16,400 Administrative Selling $4,280 7,200 11,480 Income from operations before income taxes $ 4,920