5 *Net Income Is After Tax but Before Interest
Honolulu's Weighted

5. Honolulu Enterprises has two decentralized divisions (Coconut and Guava) that have decision making responsibility over the amount of resources invested in their divisions.Recent financial extracts for both divisions are presented below:
$\begin{array}{c}\begin{array}{lll}\\\text {Fixed assets, gross}\\\text {Accumulated depreciation}\\\text {Other assets}\\\text {Liabilities}\\\text {Sales}\\\text {Net income after tax*}\\\text {Average age of fixed assets (years) }\end{array}\begin{array}{l}\text { Coconut }\\\$ 4,500 \\\$ 2,700 \\\$ 900 \\\$ 900 \\\$ 12,150 \\\$ 1,330 \\ 15 \end{array}\begin{array}{lll}\text {Guava}\\\$7,200\\\$2,160\\\$1,350\\\$1,800\\\$12,960\\\$1,810\\5\end{array}\end{array}$
*Net income is after tax but before interest
Honolulu's weighted average cost of capital (WACC) is 15% and the company uses residual income as a method to evaluate performance.Which of the following statements is correct?

A) Coconut's ROI will be raised by divesting of a project with a 20% ROI but its RI will be lower.
B) Coconut's RI will decrease by taking on a project with a $12 cost and net income before interest of $3.
C) Guava's RI will increase by taking on a project with an $8 cost and net income before interest of $1.1.
D) Coconut's RI is less than Guava's RI.
E) None of the choices are correct