You are a consultant for the Gybson Guitar Company. The Company currently has a target rate of return or desired rate return of 10%. The company awards bonuses are based upon ROI increases. If ROI decreases, no bonus is earned. Bonuses are a key part of executive compensation. The Company has four Divisions: The Oldies, Rock, Jazz, and Classic. Current results for each division of Gybson Company are as follows: Total Assets Income
Oldies $1,000,000 $160,000
Rock $1,500,000 $190,000
Jazz $1,300,000 $190,000
Classic $1,500,000 $300,000
Compute the ROI & Residual Income for each division and for Gybson as a whole. An opportunity comes along for the Classic Division to purchase a small guitar company. The purchase will require an investment of $250,000 and will increase income by $27,000.1. What is new ROI for the Classic department if they make the investment? Round to 6 points after the decimal.2. What is new ROI for the Gybson if the Classic department makes the investment?3. Will the head of the Classic Division make the investment if bonuses are only based upon increasing ROI? Explain4. Does the president of Gybson want the head of Classic Division to make the investment? Explain.