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OI and Investment Decisions

Allard, Inc., presented two years of data for its Frozen Foods Division and its Canned Foods Division.

Frozen Foods Division:
	Year 1	Year 2
Sales	$35,100,000	$37,700,000
Operating income	1,390,000	1,500,000
Average operating assets	1,760,000	1,760,000

Canned Foods Division:
	Year 1	Year 2
Sales	$11,900,000	$13,000,000
Operating income	600,000	600,000
Average operating assets	5,550,000	5,550,000

At the end of Year 2, the manager of the Canned Foods Division is concerned about the division's performance. As a result, he is considering the opportunity to invest in two independent projects. The first is juice boxes for elementary school children. The second is fruit and veggie pouches for kids on the go. Without the investments, the division expects that Year 2 data will remain unchanged. The expected operating incomes and the outlay required for each investment are as follows:

	Juice Box	Fruit Pouch
Operating income	$28,000	$15,400
Outlay	220,000	170,000

Allard's corporate headquarters has made available up to $580,000 of capital for this division. Any funds not invested by the division will be retained by headquarters and invested to earn the company's minimum required rate of return, 8 percent.

Required:

Round your answers to four decimal places before converting to a percentage. For example, .06349 would be rounded to .0635 and entered as "6.35" percent.

1. Compute the ROI for each investment.

Juice Box ROI	fill in the blank 1 %
Fruit Pouch ROI	fill in the blank 2 %

2. Compute the divisional ROI for each of the following four alternatives:

a. The juice box is added. fill in the blank 3 %

b. The fruit pouch is added. fill in the blank 4 %

c. Both investments are added. fill in the blank 5 %

d. Neither investment is made; the status quo is maintained. fill in the blank 6 %

Assuming that divisional managers are evaluated and rewarded on the basis of ROI performance, which alternative do you think the divisional manager will choose?

Juice BoxFruit PouchBoth ProjectsStatus QuoJuice Box

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