10-4

(1)

MP3 Player Residual income = $116,000 – ($800,000x 12%) =$20,000

Voice recorders Residual income $105,000- ($750,000x12%) =$15,000

(2)

Add only Add only Add both Maintain

MP3 Player Voice Recorder Projects Status Quo

Operating income $2,816,000 $2,805,000 $2,921,000 $2,700,000

Minimum income $2,256,000 $2,250,000 $2,346,000 $2,160,000

ROI 560,000 555,000 575,000 540,000

Minimum income = Operating assets x Minimum required rate of return

The manager will invest in both the MP3 player and the voice recorder. That option has the highest ROI

(3)

The company has increased profits by $35,000 before income taxes. Yes, the correct decision was made