The manager of Healthy Snack Division of Fairfax Industries is evaluated on her division's return on investment and residual income. The company requires that all divisions generate a minimum return on invested assets of 8 percent. Consistent failure to achieve this minimum target is grounds for the dismissal of a division manager. The annual cash bonus paid to division managers is 1 percent of residual income in excess of $100,000. The Snack Division's operating margin for the year was $6.5 million, during which time its average invested capital was $50 million.
a. Compute the Snack Division's return on investment and residual income. (Enter your Residual income answer in millions. Omit the "tiny_mce_markerquot; & "%" signs in your response.)
Return on investment %
Residual income $ million
b. Will the manager of the Snack Division receive a bonus for her performance? If so, how much will it be? (Omit the "tiny_mce_markerquot; sign in your response.)
Manager's bonus $