Acme Manufacturing

Acme Manufacturing is a decentralized corporation. Divisions are treated as investment centers. In recent years, Acme has been running about 11% ROA for the corporation as a whole, and has a cost of capital of 8%. One of their most profitable divisions is Walker Products, which last year had ROA of 20% ($1,600,000 operating income on assets of $8,000,000). Walker has an opportunity to expand on+e of its plants to produce a promising new product. The expansion will cost two million dollars, and is expected to increase operating earnings to $1,900,000. What factors should Walker’s manager and her supervisor, the VP of operations, consider in deciding whether to go forward with the expansion?