For 2012, the New Products Division of Tellis Company Had

question 49

Essay

For 2012, the New Products Division of Tellis Company had operating income of $7,000,000 and operating assets of $38,800,000. Tellis has set a target return on investment (ROI) of 14% for each of its divisions.
The New Products Division has developed a potential new product that would require $8,500,000 in operating assets and would be expected to provide $1,400,000 in operating income each year. Assuming that the new product is put into production, calculate the residual income for the division. Would the new product increase or decrease the division's residual income?

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