roject #$1-$ Ch $10$ ROI & Residual Income AnswerSaved Help opens in a new window Save & Exit SubmitItem$33\mathrm{.}34$pointsItemSkippedeBook References Item $3$I know headquarters wants us to add that new product line, said Dell Havasi, manager of Billings Companys Office Products Division. But I want to see the numbers before I make a decision. Our divisions return on investment $($ROI$)$ has led the company for three years, and I dont want any letdown.Billings Company is a decentralized wholesaler with five autonomous divisions. The divisions are evaluated using ROI, with year$-$end bonuses given to the divisional managers who have the highest ROIs. Operating results for the companys Office Products Division for this year are given below:Sales$ $10,000,000$Variable expenses$6,000,000$Contribution margin$4,000,000$Fixed expenses$3,200,000$Net operating income$ $800,000$Divisional average operating assets$ $4,000,000$The company had an overall return on investment $($ROI$)$ of $15\%$ this year $($considering all divisions$).$ Next year the Office Products Division has an opportunity to add a new product requiring $$1,000,000$ of additional average operating assets. The annual cost and revenue estimates for the new product would be:Sales$ $2,000,000$ Variable expenses$60\%$of salesFixed expenses$ $640,000$ Required:Compute the Office Products Divisions ROI for this year.Compute the Office Products Divisions ROI for the new product by itself.Compute the Office Products Divisions ROI for next year assuming it performs the same as this year and adds the new product line.If you were in Dell Havasis position, would you accept or reject the new product?Why do you suppose headquarters is anxious for the Office Products Division to add the new product?Suppose the companys minimum required rate of return on operating assets is $12\%$ and performance is evaluated using residual income.Compute the Office Products Divisions residual income for this year.Compute the Office Products Divisions residual income for the new product by itself.Compute the Office Products Divisions residual income for next year assuming it performs the same as this year and adds the new product.Using the residual income approach, if you were in Dell Havasis position, would you accept or reject the