The division manager of HFD Inc., was debating the merits of a new product—a toy drone with a flying radius of 25 feet. The budgeted income of the division was $849,200 with operating assets of $3,860,000. The proposed investment would add income of $360,000 and would require an additional investment in equipment of $2,000,000. The minimum required return on investment for the company is 13%. Round all numbers to two decimal places.

Required:
1. Compute the ROI of the:
a. Division if the drone project is not undertaken.
b. Radio project alone.
c. Division if the drone project is undertaken.
2. Compute the residual income of the:
a. Division if the drone project is not undertaken.
b. Drone project alone.
c. Division if the drone project is undertaken.
3. Do you suppose that the division manager will decide to invest in the new drone? Why or why not?
4. How would you reconcile the seemingly opposing results using ROI and residual income?