Question: Kelfour Enterprises has divided its operations into two divisions. Relevant accounting data for each division is as follows: Divisions Sales Operating Assets Operating Income Western

Kelfour Enterprises has divided its operations into two divisions. Relevant accounting data for each division is as follows:

Divisions

Sales

Operating Assets

Operating Income

Western Division

$ 150,000

$ 100,000

$ 15,000

Eastern Division

$ 300,000

$ 150,000

$ 16,500

Kelfour has an additional $50,000 of funds to invest. The manager of the Western Division believes that she can invest the funds at a rate of return (ROI) of 14% while the manager of the Eastern Division has found a new investment opportunity that is expected to yield a 12% ROI. Kelfour uses residual income (RI) to evaluate managerial performance. The company wide desired ROI is 10%. Based on this information

a. The manager of the Western Division would accept the $50,000 additional investment opportunity because it would increase the Division's RI by $2,000.

b. The manager of the Eastern Division would accept the $50,000 additional investment opportunity because it would increase the Division's RI by $2,000.

c. The CEO would be indifferent because the $50,000 additional investment would increase the RI of the company as a whole regardless of which Division receives the additional investment.

d. All of the answers represent true statements.

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