Car Deals Inc. has two divisions: New Cars and Used Cars.The following segmented financial information is for the most recent fiscal year:

New Cars Division Used Car Division

Sales $9,000,000 $18,000,000

Cost of Goods Sold 3,300,000 8,700,000

Allocated Overhead 1,050,000 2,550,000

Selling and admin expenses 585,000 630,000

The new cars division had average operating assets totaling $17,400,000 for the year, and the used cars division had average operating assets of $22,800,000.Assume the cost of capital rate is 15% and the company's tax rate is 40%.

Required:

1.Calculate return on investment (RO I) for each division.

2.Calculate residual income for each division.