Sunrise Corporation has a return on investment of 15%. A Sunrise division, which

Question

• Sunrise Corporation has a return on investment of 15%. A Sunrise division, which currently has a 13% ROI and $750,000 of residual income, is contemplating a massive new investment that will (1) reduce divisional ROI and (2) produce $120,000 of residual income. If Sunrise strives for goal congruence, the investment:
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  • should not be acquired because it reduces divisional ROI.
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  • should not be acquired because it produces $120,000 of residual income.
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  • should not be acquired because the division's ROI is less than the corporate ROI before the investment is considered.
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  • should be acquired because it produces $120,000 of residual income for the division.
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  • should be acquired because after the acquisition, the division's ROI and residual income are both positive numbers.

Explanation / Answer

Hi,

Please find the answer as follows:

Option D (should be acquired because it produces $120,000 of residual income for the division) is the correct answer.

Thanks

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