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

Question

Quizplus · Accepted Answer

Residual income is a measure of absolute profit in dollars, unlike ROI which is a percentage measure of return. The investment increases the division's residual income by $120,000, indicating it generates more absolute profit, aligning with the goal of enhancing overall company value, thus supporting goal congruence.

Sunrise Dairies Has a Return on Investment of 15 Per