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Brown is a division of Crayola Corporation, and operates as an investment center. Brown currently has assets of $15 million, revenues of $12 million, and
Brown is a division of Crayola Corporation, and operates as an investment center. Brown currently has assets of $15 million, revenues of $12 million, and expenses of $9 million. The president of Brown has an opportunity to acquire Below Corporation, which has revenues of $4 million, and expenses of $2.8 million. Acquisition price value of assets would be $7.5 million Capriola has a target ROI for all divisions of 14%. a) Compute Browns current ROI b) If Cr ayola evaluates divisions based on ROl, will be the president of Brown be inclined to make the acquisition ? Explain. Use the DuPont method to provide insight into your answer. Would your answer change if Crayola also used residual income in evaluating divisions? Explain
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