Demonstrate how Marlin can motivate the Rite Division to make the investment by using the residual…

Comparing return on investment with residual income

The Rite Division of Marlin Corporation has a current ROI of 20 percent. The company target ROI is 15 percent. The Rite Division has an opportunity to invest $4,000,000 at 18 percent but is reluctant to do so because its ROI will fall to 19.2 percent. The present investment base for the division is $6,000,000.

Required

Demonstrate how Marlin can motivate the Rite Division to make the investment by using the residual income method.