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You are a senior manager at the Hunt Corporation. You need to decide whether to...

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Accounting

You are a senior manager at the Hunt Corporation. You need to decide whether to invest in a new product line. The minimum required rate of return is 6%.
The current year financial statements show the following results:
Sales
$12,850,000
Variable expenses
8,200,000
Fixed expenses
3,405,000
Operating assets, beginning of year
$25,000,000
Operating assets, end of year
$30,000,000
The new product line will require an investment of $2,400,000 and the expected operating results is as follows:
Sale
$1,400,000
Variable expenses
62% of sales
Fixed expenses
Calculate the current return on investment (ROI).
Calculate the ROI if the new product line is added.
Provide a supported conclusion on whether you would proceed with the new product line based on your ROI calculations
Calculate the residual income (RI) for the current year.
Calculate the residual income if the new product line is added.
Provide a supported conclusion on whether you would proceed with the new product line based on your RI calculations.
Explain some of the potential problems which are common to using both ROI and RI.

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