Reference no: EM131088026

Cole Corporation operates three investment centers. The following financial statements apply to the investment center named Morrison Division. MORRISON DIVISION Income Statement For the Year Ended December 31, 2014 Sales revenue $ 135,000 Cost of goods sold 78,500 Gross margin 56,500 Operating expenses Selling expenses (5,000 ) Depreciation expense (8,000 ) Operating income 43,500 Non operating item Loss of sale of land (15,000 ) Net income $ 28,500 MORRISON DIVISION Balance Sheet As of December 31, 2014 Assets Cash $ 18,580 Accounts receivable 42,266 Merchandise inventory 37,578 Equipment less acumen. dep. 90,258 Non operating assets 9,000 Total assets $ 197,682 Liabilities Accounts payable $ 9,637 Notes payable 72,000 Stockholders’ equity Common stock 80,000 Retained earnings 36,045 Total liab. and stk. equity $ 197,682 Required:

Cole has a desired ROI of 10 percent. Headquarters has $96,000 of funds to assign to its investment centers. The manager of the Morrison Division has an opportunity to invest the funds at an ROI of 12 percent. The other two divisions have investment opportunities that yield only 11 percent. d. Calculate the new ROI for Morrison division, if the investment opportunity is adopted by Morrison. (Round your answer to 2 decimal places. (i.e., .2345 should be entered as 23.45))

e-2. Calculate the new residual income based on information provided in requirement d. (Round your answer to the nearest dollar amount.)