Question

Zachary Technologies, Inc. has three divisions. Zachary has a desired rate of return of 12.0 percent. The operating assets and income for each division are as follows: Divisions Operating Assets Operating Income Printer $ 730,000 $ 114,610 Copier 1,000,000 101,000 Fax 550,000 72,050 Total $ 2,280,000 $ 287,660 Zachary headquarters has $139,000 of additional cash to invest in one of its divisions. The division managers have identified investment opportunities that are expected to yield the following ROIs: Expected ROIs for Divisions Additional Investments Printer 13.5 % Copier 12.5 % Fax 11.5 % Calculate the residual income: (1) At the corporate (headquarters) level before the additional investment. (2) At the division level before the additional investment. (3) At the investment level. (4) At the division level after the additional investment.

Answer 1