The University Development department at Texas A&M University is evaluated as an investment center. Kyle...
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The University Development department at Texas A&M University is evaluated as an investment center. Kyle Fieldman is the manager of the University Development department and is in charge of approving new projects and investment opportunities. The Universitys required rate of return for all projects is 8.5%, but Kyle usually aims for a rate of return of 9% to increase his bonus. Recently, Kyle was approached with a plan to purchase a brick pizza oven for every dining facility on campus. This investment would initially cost $5,000,000, but it would bring in revenues of $1,000,000 and incur expenses of $555,000 every year. What are the investments ROI and RI? Would Kyle be more likely to approve the project if his department was evaluated by ROI or residual income?
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