Jarriot, Inc. presented two years of data fro its Furniture Divicion and its Houseware Division: Furniture Division: Year 1 Year 2 Sales $35,500,000 $38,200,000 Operating Income 1,440,000 1,550,000...

Jarriot, Inc. presented two years of data fro its Furniture Divicion and its Houseware Division:

Furniture Division:

Houseware Division:

At the end of Year 2, the manager of the Houseware Division is concerned about the division's performance. As a result, he is considering the opportunity to invest in two independent projects, th Espresso-Pro and the Mini-Prep.

Jarriot's corporate headquarters has made available up to $500,000 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, 7%.

1.
Compute the divisional residual income
for each of the following four alternatives: (Round to the nearest dollar.)

• The Espresso-Pro is added


• The Mini-Prep is added


• Both investments are added


• Neither investment is made

Which alternative do you think the divisional manager will choose?

2. Assuming that management acts as you recommend in question 1,
compute the change in profit from the divisional manager's investment decision.