Question
A global consumer goods manufacturer has three divisions which operate in different businesses. The financial information for each division is as follows: Divison A Division
A global consumer goods manufacturer has three divisions which operate in different businesses. The financial information for each division is as follows:
Divison A Division B Division C
cost of capital 10 percent 8 percent 6 percent
operating profit (m) 900 1,500 600
investment(m) 5,000 10,000 6,000
a). Calculate the return on investment for each division. Which divisions have a better and worse performance, according to the ROI measure?
b). Indicate possible reasons why the division have different costs of capital.
c). Calculate the residual income of each division. Which divisions have a better and worse performance, according to the RI measure?
d). Are the division's rankings different between the first and third question? Why/why not?
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