Refer to Exercise 10-1 for data. At the end of Year 2, the manager of the Camping

Question:

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?