Refer to Exercise 10-1 for data. At the end of Year 2, the manager of the Camping Division is concerned about the division€™s performance. As a result, he is considering the opportunity to invest in two independent projects. The first is called the €œEverTent€; it is a small two-person tent capable of withstanding the high winds at the top of Mount Everest. While the market for actual Everest climbers is small, the manager expects that well-to-do weekend campers will buy the tent due to the cachet of the name and its light weight. The second is a €œKiddieKamp€ kit that includes a child-sized sleeping bag and a colorful pup tent that can be set up easily in one€™s backyard. Without the investments, the division expects that Year 2 data will remain unchanged. The expected operating incomes and the outlay required for each investment are as follows:

Deercreek€™s corporate headquarters has made available up to $1 million of capital for this division. Any funds not invested by the division will be retained by headquarters and invested to earn the company€™s minimum required rate of return, 9 percent.

Required:
1. Compute the ROI for each investment.
2. Compute the divisional ROI for each of the following four alternatives:
a. The EverTent is added.
b. The KiddieKamp is added.
c. Both investments are added.
d. Neither investment is made; the status quo is maintained. Assuming that divisional managers are evaluated and rewarded on the basis of ROI performance, which alternative do you think the divisional manager willchoose?

EverTent KiddieKamp Operating income 55,000 500,000 S 38,000 400,000 Outlay